A few days ago, we noted that despite hedge funds having succumbed to the double-whammy of poor performance and scandal, institutional investors seems remarkably sanguine about their alternative investment portfolios. A survey by SEI and Greenwich found that two-thirds of institutions expected their hedge fund allocation to “stay the same” even by the time the survey was conducted in January – well into the great hedge fund draw down of last fall.
Sounds nuts, right? Well, now another survey seems to corroborate this finding. In fact, a survey of 50 institutional investors released last week by Preqin, a London-based consulting and research firm, found that and they planned on increasing their allocations to hedge funds.
As you might guess if you read this website on a semi-regular basis, we’re not surprised by those whose confidence was unaffected. But we’re very curious about what occurred in the past 12 months that could have actually increased one’s confidence in any investment, let alone hedge funds. The snap survey was conducted only a few weeks ago, so unless the respondents had been at a Monastic retreat in Nepal or stuck on a South Pacific island with the cast from Lost, they would have had plenty of time to second guess their investment decisions over the past year. A measly 7% (1 in 14) said they were reducing their allocation to hedge funds (chart from report below).
When asked if they would now invest solely in “well known or established managers” in this post 12/11 environment, only 15.4% said “yes”. The irony for those investors, of course, is that Madoff was “well known and established.” Perhaps that’s what the other 84.6% were thinking too.
It was also notable that the past year only caused 15% of respondents to demand their hedge funds put more risk management measures in place. Topping the wish list for investors instead was “increased transparency and understandable strategy.”
Still, nearly two-thirds said they were “satisfied with the quality of information on liquidity and fund reporting.” (see chart below from the report)
Regular readers may recall that this was pretty close to what PriceWaterhouseCoopers recently found in a survey conducted last year (see related post). Two thirds of respondents to that poll said that hedge funds provided Goldilocks reporting – not too much, not too little, but just right (below)