Citi: Institutional hedge fund investments will climb to $2.3 trillion by 2017

Global institutional investment in hedge funds will increase 56% to $2.3 trillion by year-end 2017 from the end of 2012, predicted researchers at Citi Prime Finance in a report released Wednesday.

Institutional assets will account for 71% of global hedge fund industry assets as of the end of 2017, up from 66% as of Dec. 31, 2012, and 53% at the end of 2007, according to Citi's report, “The Rise of Liquid Alternatives & the Changing Dynamics of Alternative Product Manufacturing and Distribution.”

Hedge funds as a percentage of global defined benefit plan assets will rise to 5.3% at the end of 2017, compared with 4.2% at the end of 2012 and 3% as of Dec. 31, 2007, the report said.

Also, Citi's researchers predicted assets managed in U.S. liquid alternative funds (including hedge fund strategies and exchange-traded funds) will rise 198% to $908 billion at the end of 2017 from the end of 2012.

But even as overall assets more than triple, institutional investor investment in U.S. liquid alternatives vehicles, including mutual funds, likely will remain around 15% from 2012 through year-end 2017.

The 2013 Citi Prime Finance annual hedge fund report is based on data from interviews conducted in February and March with 82 organizations, including institutional investors, hedge fund managers, traditional money managers and investment consultants. Collective hedge fund assets totaled $336 billion, and the organizations managed or advised on a total of $5.6 trillion.