Survey of consultant search activity reveals that hedge funds will be the focus of attention in 2007, with private equity and real estate close behind
Casey Quirk and eVestment Alliance have unveiled their first annual study of consultant search activity, revealing that more consultants will focus on Hedge Funds than on any other strategy. Over 50% of respondents mentioned Hedge Funds as one of their top search items for 2007.
Traditional Equity searches will still generate most search activity. Despite the rise in search activity for alternative products, traditional equity will still generate the majority of searches.
The report is a summary of 2006 search activity in the USA as reported by consultants and provides a forward-looking perspective on manager searches to be conducted in
2007. A total of 61 respondents, from 49 consulting firms representing over USD 5 trillion in assets under advisement, participated in the survey.
Fifty-six per cent of respondents from firms advising less than USD 100 Billion and 33% of those advising more than USD 100 Billion plan to focus on Hedge Funds.
In addition, 68% of consultants see an increase in Hedge Fund searches over 2006, and 25% of them see a significant increase in Hedge Fund searches. Surprisingly, not one of the consultants responding to the survey expects to conduct less Hedge Fund searches in 2007 than they did in 2006.
The report also reveals Consultants will prefer Fund of Funds over direct Hedge Fund investing. Forty-nine percent of respondents prefer Fund of Funds, versus 19% who prefer direct investing in Hedge Funds. Thirty-two percent of consultants are indifferent.
This finding supports the view of the 'Hybrid Approach' to investing in Hedge Funds we described in the research paper from 2006 (Institutional Demand for Hedge Funds: New Opportunities and New Standards by Casey Quirk and The Bank of New York).
Among the ten consultants whose primary segment is public pension plans, only one preferred direct Hedge Fund investing over Fund of Funds. Conversely, 50% of consultants who consult primarily to individuals preferred the direct approach, versus 30% who preferred Fund of Funds.
The report reveals that, despite being a relatively small part of the typical portfolio, Private Equity and Real Estate searches will each be a primary focus for 24% of respondents. Consultants with asset size between USD 25 Billion and USD 50 Billion are most likely to conduct Private Equity and Real Estate searches. Thirty-six percent of consultants in this size range see Real Estate as a top search priority for 2007, and 43% of them see Private Equity as a top search priority. Forty-four percent of consultants expect to conduct more Private Equity for Real Estate searches in 2007 than they did in 2006. None of the consultants thought they will conduct less Private Equity searches in 2007.
Responses by size of firm varied most regarding International Equity searches. Sixty-two percent of respondents from firms advising over USD 100 Billion expected to focus on International Equity, versus 45% of respondents from smaller firms.
The firms jointly stated: 'Our hope is that this report is a helpful tool for investment managers as they prioritize their sales and product development initiatives and a useful peer benchmark for investment consultants as they evaluate their own search activities against their peers.'
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