Institutional investors are optimistic about hedge fund returns, predicting an average 10.3% return in 2005 with a 6.2% standard deviation, according to a new survey of 76 funds by hedge fund researcher InfoVest21. At the low end, corporate pension plan officials expect hedge funds to deliver a 7.7% return this year, while at the high end, foundation officials expect returns of 15.4%.
That rosy overall outlook may be part of the reason respondents plan to drop their allocations to equities in 2006 and pump up allocations to hedge funds and other alternative investments. The average target asset mix in 2005 is 59% equities, 23% bonds, 3% cash, 5% hedge funds and 10% other alternatives, according to the survey. The estimated target asset mix for 2006 is 51% equities, 22% bonds, 7% cash, 7% hedge funds and 13% other alternatives.