Hedge fund investment could be slowing down, according to recent research.
The Hennessee Hedge Fund Advisory Group, a global hedge fund investment consulting firm, found there was a 5% growth in assets in the industry this year, the lowest percentage growth since 1974.
Transparency and liquidity issues could be part of the reason ' Hennessee found these to be the most pressing issues for hedge fund investors.
But the firm's research was not all discouraging for the industry. Nearly half of hedge fund investors surveyed by the firm said they are set to increase their allocation to the asset class this year and, despite volatile markets, 82% of investors said hedge funds had met or exceeded their expectations. Hedge fund investors currently have about one-third of their investable net worth in hedge funds.
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 ' 30% of hedge funds use a multi-manager product for their traditional investments, while 50% are using a multi-manager product for their hedge fund investments, according to Hennessee.
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 market continues to look attractive, according to Elizabeth Lee Hennessee, founder and managing principal of Hennessee Group.
The Hennessee Hedge Fund Index experienced its first down year in 2002 since inception in 1987, finishing down -3.43%. In 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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