Despite performance, liquidity and fraud concerns highlighted by the recent global financial crisis, U.K. and European pension funds are looking to boost hedge fund-of-funds investments in 2010, according to an annual survey by Mercer.
More European pension funds — 13.6% — expected to increase allocations to hedge funds of funds than any other alternative asset class.
European pension funds, which historically have invested in single-strategy hedge funds, plan to use funds of funds to increase diversification, said Crispin Lace, senior investment consultant at Mercer and author of the report on the survey of more than 1,000 of Mercer's clients representing in excess of €500 billion ($670 billion).
“There's a huge movement toward increased transparency,” Mr. Lace said at a news conference in London today. He said it is now common for clients to look carefully at prospective fund-of-funds portfolios one hedge fund at a time so they understand underlying investments. “That's not something you would have seen four or five years ago.”
Defined benefit plans in the U.K. and Europe plan to boost other alternative investments in 2010, too. Nearly 9% of European plans will increase allocations to emerging market debt, commodities and private equity funds of funds, while infrastructure, global tactical asset allocation and timber strategies also are expected to see increased allocations. Among U.K. pension funds, 6.2% plan increases to GTAA, 5.4% to emerging market debt and 3.8% to hedge funds.