Only about 20% of pension and endowment funds allocate assets to hedge funds, according to a new BARRA Strategic Consulting Group survey. Most of those that do are larger, more sophisticated funds. And of those that don’t, more than 75% have no plans to do so. Also, only about $1 billion in hedge fund allocations, including fund of funds, were the result of traditional searches — the rest were from word of mouth, industry contact information and references.
Nearly one-third of the corporate and public plans surveyed by BARRA cited lack of transparency as a primary concern. Other significant factors were the plans’ conservative investment strategies and a lack of understanding of the asset class, according to BARRA.
Still, BARRA forecasts annual growth of 20% or more in the hedge funds market over the next couple of years. This is due to demand for these strategies among large pension plans in the United States, Europe and Japan, along with what BARRA calls the overall attractiveness of alternative investments. After that, capacity constraints will slow growth "significantly.”