A survey by Alix Capital found 38% of investors surveyed believed their investment advisers were behind the curve when it comes to advising on the hedge fund sector, and although 69% do intend to increase their allocation to the sector in the next year, over half believe that performance needs to improve before they further increase their allocations to these products.
The findings raise the question of whether hedge funds are being exploited to their full potential as portfolio diversifiers, or whether they are in fact damaging portfolios as was suggested in a research report published by Capital Generation Partners yesterday.
The report suggested that the underlying assets and the strategy followed should be given precedence when committing capital to an investment intended to diversify a product, as many strategies are highly correlated. Simply allocating to a hedge fund, or another so-called alternative asset, is not enough to negate risk elsewhere in the portfolio.
Of the investors surveyed by Alix Capital, almost half are planning to increase exposure to long/short equity Ucits funds, while 36% plan to reduce their allocations to fixed income products. While the outlook for long/short products may be positive, investors will only be able to exploit their full potential if they are used in a portfolio of low-correlated investments.
Louis Zanolin, CEO of Alix Capital, said: “While the majority of institutional investors understand the advantages that Ucits hedge funds can offer them, especially in regards to liquidity, transparency and regulation, there are still many improvements that need to be made to improve the perception of Ucits as a competitive framework. Providers need to enhance communications with the investment consultant community to improve their understanding and awareness of the Ucits alternative space.”
