Pension funds are predicting strong growth and attractive risk-adjusted returns in the hedge fund sector but may avoid some strategies if managers can’t display transparency, according to research published by Beacon Platform.
Beacon’s research with 33 pension funds in the US, UK, Germany, Switzerland, France, Italy, Hong Kong, and Singapore found 88% expect the hedge fund industry to add more than $190 billion in assets this year with 27% expecting it to add between $250 billion and $500 billion.
Beacon, a provider of portfolio analytics and risk management, shows all pension funds questioned believe investing in hedge funds will be attractive in terms of risk-adjusted returns over the next five years, with 15% describing it as very attractive.
However, a large majority (88%) of these investors agree that the quality of information and transparency in hedge funds needs to improve, with 27% saying it needs to improve dramatically.
Beacon said this may be a contributing factor to changes in fund allocations. A slightly similar amount (91%) have decided not to invest in a particular fund because of concerns over its risk management, and almost all (94%) think that this will be a growing trend.
As part of its study, Beacon surveyed a wide range of institutional investors including pension funds, insurance asset managers and family offices. Some 81% of pension funds were set to increase their hedge fund allocation by 10% or more, compared to 54% of sovereign wealth and 49% of wealth managers/retail investors.
Data from Hedge Fund Research earlier this year estimated total assets under management at hedge funds hit a record $4.6 trillion at the end of the first quarter this year.
