Nearly half of institutional investors - 48% - had more than 5% of plan assets invested in hedge funds in 2005, compared with 44% in 2004, according to a State Street Corp. survey of corporate and public pension plans and endowments and foundations with more than $1 trillion in combined assets. The percentage of investors with more than 10% of assets invested in hedge funds rose to 44% last year from 35% in 2004, according to State Street Corp., which conducted the survey at the Global Absolute Return Congress in October.
State Street asked about private equity investment for the first time last year and found that 19% of respondents said they have more than 10% of their portfolio allocated to the assets class; 28% had between 5% and 10% of assets; 43% had between 1% and 5%; and 10% had no private equity allocation.
In addition, 81% of respondents said their fund's governing board was more comfortable with hedge fund investing than it was 12 months earlier; 33% said their boards spend more than 20% of their time discussing alternative investments, and 30% said their boards spend between 10% and 20% of their time on the issue.
Most of those surveyed said they were raising their hedge fund and private equity allocations at the expense of passive and active equity. Almost half (45%) said increased hedge fund allocation would come from active equity; 35% said it would come from passive equity; 10%, from passive bonds; and 5% each, from active bonds and commodities. For private equity investors, 59% said increased allocations would come from active equity; 22%, from passive equity; 9%, from hedge funds or funds of funds; and 5% each, from active and passive bonds.