Super funds to raise hedge fund weighting

Australian super funds are predicted to increase their investment allocation to hedge funds by $1 billion over the next two to five years with some switching from the popular fund-of-fund strategy to single strategy and multi-strategy hedge funds.

The findings came from a survey commissioned by the Australian Chapter of the Alternative Investment Management Association (AIMA), the peak body for hedge funds, and conducted by the University of NSW Business School.

According to the research, major super funds expect to increase their average allocations to hedge funds from 2.5 to 3.5 per cent over the next 2-5 years. This contrasts with the 2006 findings that predicted a $1.5 billion increase, from a corresponding 2.9 per cent average allocation to 4.1 per cent. Arguably, the share markets have drastically changed since January 2006, when the earlier survey was conducted.

Overall, AIMA Australia Chairman Kim Ivey said in an interview with Financial Standard the findings show that super funds are still pouring money into hedge funds despite “concerted criticism” of the sector.

“These survey results reflect a positive confirmation of the institutional market’s perception of hedge funds. We believe that with more understanding of this sector and greater operational transparency, confidence will continue to increase among all institutional investors, not just super funds,” he said.

“Significantly, the levels of confidence among super funds have remained consistent since our last survey two years ago. This is despite concerted criticism leveled at hedge funds in the Australian market, which we believe has served to make the market more volatile and less informed.

The survey also revealed that nearly 65 per cent of super funds surveyed favoured hedge fund products offered by institutional managers over boutique managers. Less than 6 per cent invested in Australian boutique hedge fund managers.