Institutional investors are increasingly turning to alternative investment vehicles to diversify their portfolios and US$85 billion will be poured into hedge funds and fund of hedge funds through institutional commitments alone over the next 12 to 18 months, according to a report by Private Equity Intelligence(Prequin).
Pension plans have been, and continue to be, the fastest growing source of institutional capital for hedge fund managers—with many pension funds being underfunded, and forced to reconsider their investment policies and increase allocations to alternatives.
One of the earliest public pension plans to utilize hedge funds was the Ontario Teachers’ Pension Plan, which made its maiden investment in 1994. Thirteen years later, it is now one of the most sophisticated institutional investors in the market, with a 12% target allocation, says the report.
Prequin estimates that a third of public pension funds are below their target allocation towards the asset class and will continue to invest at a high level over the next 18 months.
“With other institutions continually reassessing their exposure to hedge funds, and with new investors—particularly public pension plans—constantly entering the arena,” the report says, “institutional interest in hedge funds is set to grow significantly.”
To read the report on Prequin’s website, click here.
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