The hedge fund industry is bracing itself for an enormous influx of assets from institutional investors in 2004 and beyond.
Hedge fund executives and consultants emphasized very different issues when asked what's in store for 2004. But there was broad agreement on some issues: increased institutional use of hedge funds; institutionalization of the hedge fund business; investment capacity and constraints; regulation (deregulation, no regulation and self-regulation); portfolio valuations; and performance (or lack thereof).
A trend that picked up speed in 2003, but which will really surge this year, is institutional investor use of portable alpha strategies (combining futures and hedge funds) and absolute-return strategies (hedge funds only), said Mike Napoli, managing director, Wilshire Associates Inc., Santa Monica, Calif.
While most investors will make a minimal allocation to alternatives, a good number likely will eliminate their long-only equity allocations in favor of a portable alpha strategy using S&P 500 futures and a diversified portfolio of hedge funds, Mr. Napoli predicted.