American institutional investors aren’t investing in hedge funds to the degree of their global peers, finds a survey by Pyramis Global Advisors.
While the use of alternative investments is still rising rapidly in the rest of the world, use of liquid and illiquid alternatives appears to be slowing among U.S. institutions.
Pyramis surveyed 811 respondents in 22 countries representing more than US$9 trillion in assets.
Among respondents planning an allocation increase to illiquid alternatives over the next one to two years, Asia leads the way with 79%, followed by Europe (57%) and the U.S. (22%).
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When asked which investment approaches are most likely to underperform over the long term, 31% of U.S. respondents cite hedge funds as least likely to meet expectations. Risk factor investing is expected to be the biggest disappointment among Canadian, European and Asian plans.
When asked specifically about the fees associated with alternative investments, only 19% of U.S. plans surveyed say hedge funds and private equity are worth the fees, as compared to 91% in Asia and 72% in Europe.
“U.S. plans are currently reevaluating the complexity, risks and fees associated with hedge funds,” said Derek Young, vice chairman of Pyramis Global Advisors. “Our survey suggests that U.S. institutions are preparing to move back to a more traditional, back-to-basics portfolio.”
As Advisor’s Kaite Keir reports:
“As such, most major institutional funds have turned to alternatives such as real estate and private equity to beef up their yields.”
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