Twenty nine per cent of investors plan to allocate more capital to hedge funds over the next 12 months, according to a survey of 50 hedge fund investors by Preqin.
Fifty six per cent plan to invest the same amount in the asset class and just 15 per cent plan to make cuts to their hedge fund portfolios.
The survey also found that 26 per cent of institutional investors are below their target allocation to hedge funds. Sixty four per cent of those surveyed are at their current targeted exposure and ten per cent are currently over-exposed to hedge funds.
An additional 37 per cent of institutional investors intend to increase the number of relationships they have with hedge fund managers over the next 12 months, while 53 per cent intend to maintain the current number of funds they are invested with and ten per cent plan to reduce the number of managers they invest with.
Over the longer term (three to five years), 46 per cent of surveyed investors intend to increase their exposure to hedge funds.
According to the survey, 69 per cent of investors feel that the hedge funds within their portfolios have either met or exceeded return expectations. This is a drop from 73 per cent of investors in a similar survey conducted in 2009.
Amy Bensted, manager, hedge fund data at Preqin, says: “Despite a slight drop in investor satisfaction in hedge fund returns over the past 12 months, institutional investors are beginning to invest more capital in hedge funds in greater numbers than they were a year ago. With 29 per cent of institutional investors planning to allocate more capital to hedge funds in the next 12 months and just 15 per cent looking to make cuts, the balance of inflows into the asset class is positive. Furthermore, 37 per cent of institutional investors are planning to add new funds to their portfolio in the next 12 months and are actively seeking relationships with new fund managers.
“The long-term outlook for the asset class is even more positive, with 46 per cent of investors planning to increase their exposure to hedge funds over the next three to five years. It is clear that institutional investors still believe hedge fund investments are a valuable part of their portfolios. Recovery in terms of asset flows into the industry has already begun and the Preqin survey suggests it is likely to increase steadily over the medium to long term.”
