Institutional investors move towards direct investment in Q2

The Q2 2005 Institutional Barometer published by Investor Source in association with Clifford Chance, shows increased interest in hedge fund investments coinciding with a marked decrease in the percentage of institutions investing through the funds of hedge funds route when compared with the first quarter of the year.

“As hedge fund performance figures have improved after a slow start to 2005, we are seeing investors becoming less risk-averse; institutions are increasingly showing willingness to sacrifice the diversification benefits of the funds of hedhe funds approach for more direct, not to say less costly, access to the underlying funds,” explains Matt Craig-Greene, Research Director at Investor Source.

Investing through multi-manager vehicles nevertheless remains the preferred route into hedge funds for the 160 institutions surveyed across Europe..

In the Nordics, the UK, and fund-of-funds-dominated Austria, there has certainly been strong growth in the size of allocations to the asset class in the past three months.

 “With changing regulations in certain regions making it more comfortable for institutions to invest in alternative asset classes, it will be interesting to see whether the increased interest in the asset class picked up on in this quarter’s barometer is still evident in three months’ time,” says Matthew Judd of Clifford Chance.

The sharpest increase in allocations was to be found amongst institutions that dealt with private and family wealth; the mean allocation of family offices surveyed rose from 5 per cent to 13.3 per cent. However, pension funds also increased allocations over this period (from 4.8 per cent to 6.1 per cent), as did corporate treasuries and banks.

“Opportunistic, more entrepreneurial institutions, such as family offices and wealth managers, have been quick in capitalising on the better returns achieved by many strategies in recent months; it is the increased levels of interest amongst the more conservative pension funds and treasuries that will be most encouraging for hedge fund managers with open funds,” adds Craig-Greene.

The next Institutional Barometer is currently being researched for release in October.

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