Hedge fund investment could be slowing down, according to research from investment consultants Henn...
Hedge fund investment could be slowing down, according to research from investment consultants Hennessee Hedge Fund Advisory Group.
Hennessee said there was a 5% growth in assets in the industry in 2002, the lowest annual percentage growth since 1974.
Transparency and liquidity issues could be part of the reason, as Hennessee found these to be the most pressing concerns for hedge fund investors.
But the research was not all discouraging for the industry. Some 43% of hedge fund investors surveyed by the firm said they were set to increase their allocation to the asset class in 2003 and, despite volatile markets, 82% of investors said hedge funds had met or exceeded their expectations in 2002.
Hedge fund investors currently have about one-third of their investable net worth in the asset class, according to Elizabeth Lee Hennessee, managing principal of the group.
The most popular hedge fund strategies among respondents were convertible arbitrage and distressed styles, both appearing in 61% of hedge fund portfolios. Multi-manager products were also popular, with 30% of hedge funds using a multi-manager product for their traditional investments, while 50% used a multi-manager product for their hedge fund investments, Hennessee said.
Despite growing institutional investment in the asset class, individuals and family offices continue to be the largest investors, comprising 56% of capital in the industry.
The largest increase in hedge fund investments came from endowments, with a jump from 6% in Hennessee's 2002 survey to 16% in its 2003 survey.
Hedge fund performance has been shaky due to difficult market conditions but the sector continues to look attractive, Hennessee said.
2002 was the first negative year for the Hennessee Hedge Fund Index since inception in 1987, finishing down 3.43%. By comparison, the S&P 500 finished down 22.19%, the Dow Jones Industrials Average down 16.76%, and the Nasdaq down 31.52%.
'The performance of hedge funds in 2001 and 2002 has made it increasingly prudent to consider hedge funds as an equity or bond investment within traditional asset allocation,' said Hennessee.
'Someday, we believe it will be considered imprudent not to include hedge funds within a stock and bond allocation.'
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