Institutional investors keep allocations to hedge funds

The vast majority of institutional investors (75%) have maintained their allocations to hedge funds despite suffering the worst year on record for performance on their investments.

The findings are from a survey by Greenwich Associates and SEI conducted in November 2008.

Over 90% of institutions polled said they had either increased or maintained their allocations to hedge funds in the last two years. Three out of four investors surveyed said they had taken "no action" with regard to their hedge fund allocations in response to the crisis.

Asked why, 83% of those taking no action indicated their commitment to hedge funds has remained unchanged. The remaining respondents had investments that were subject to lock-up provisions.

"The silver lining for hedge fund managers is that institutions appear committed to hedge funds as an asset class," said Phil Masterson, managing director for SEI's investment manager services division.

The survey did highlight a number of concerns institutional investors have about hedge funds. More than 80% of respondents cited poor performance as their biggest concern regarding hedge funds. Investors also cited lack of liquidity, funds not achieving their stated objectives and headline risk as top concerns.

Beyond performance, investors called on hedge funds to provide greater transparency and enhanced client reporting and communications.

Among respondents planning to decrease allocations by at least 10 %, the top-ranking reason was lack of transparency.