Hedge fund allocations decline

Institutional investors are hanging tough on their asset allocations and have been largely unmoved by the turbulent financial markets, according to the results of a State Street hedge fund study.

The study, the results of which were released last week, have revealed that three-quarters of institutional investors do not plan to modify their portfolio allocations, albeit that there will be a moderate decline in overall allocations to hedge funds.

Commenting on the research, the executive president and head of relationship management and client strategy for State Street's Alternative Solutions team, Gary Enos, said hedge funds had not been immune to the extremely volatile market environment.

"While alternative investments such as hedge funds, largely outperformed traditional investments in 2008, negative returns understandably disappointed," he said.

"Although hedge fund allocations declined slightly over the past year, we anticipate growth will resume in 2009, as institutional investors continue to focus on diversification and risk management."

Enos said the study had shown a moderate decline in overall allocations to hedge funds, with institutions allocating more than 5 per cent of their portfolio to hedge funds decreasing from two-thirds in 2007 to half in 2008.

However, he said the majority of institutional investors intended to either increase or maintain their allocations to hedge funds in the next year.