Performance is Driver Behind Alt Allocations
Performance is Driver Behind Alt Allocations
By Pamela Appea
Alternative Investment News
The numbers are in—hedge funds are out front, driving institutions to allocate into the arena. With alternative investments beating the traditional stock and bond markets, institutional investors are expected to continue their move into hedge funds in 2001.
Buoyed by the sector’s strong performance, in general, many investment officers at pension plans, foundation and endowments are looking at entering or increasing their investments in these alternatives, consultants said. Hedge fund managers also report an uptick in interest from institutional investors.
“Last year told the story, and that convinced people who were sitting on the fence,” said Terry Jones, managing director at New York-based Arden Asset Management, a market-neutral fund of funds. “They really had to see it to believe it.”
Indeed 2000 was a banner year for hedge funds which, according to the Hennessee Hedge Fund Review returned 6.25% for the year, outperforming the Nasdaq Stock Market (-39.72%), the Standard & Poor’s 500 Index (-9.73%) and the Lipper Mutual Fund index (9.54%.)
“Last year was the first year, in perhaps five, that hedge funds really proved the mettle,” added Ross Ellis, a consultant at Oaks, Pennsylvania-based SEI investments.
Charles Gradante, a principal at the Hennessee Group, said it is clear that more institutions are choosing to invest with hedge funds. Preliminary figures from the Hennessee Group’s soon-to-be-completed annual survery show a large jump in institutional investors.
“The initial results ….indicate …2001 will entail the largest increase in institutional allocations to hedge funds—ever,” Gradante said.
Market Neutral, Arb Strats Seen as Top Picks
Market neutral hedge funds, which returned 7.05% last year, according to the Hennessee Hedge Fund Review, will continue to be in top demand, predicted consultants and hedge fund managers. These funds have relatively low votality, and though their returns may fall far short of stellar, they ae uncorrelated to traditional bond and stock markets. Because of the sector’s characteristics, Joseph Aaron, president of the hedge fund consultancy Wood, Hat & Silver said he felt it would continue to be a good fit for institutional investors.
Merger and convertible arbitrage strategies, which according to Hennessee, returned 17% and 8.61% in 2000, will also be strong draws for institutional monies, predicted Jones. Whereas most hedge funds often tinker with their styles, the arbitrage strategists tend to stay more true to form, he noted. Institutional investors are far less tolerant to style drift than affluent investors.
For those looking for higher returns and willing to take on more risk, healthcare/biotech and distressed debt strategies are worth watching, consultants recommended. The healthcare/biotech sector which was the top-performing last year, at 62.37% could present a high-risk high-reward opportunity through the first half of the year, predicted Richard
Bookbinder, a general partner and portfolio manager for Roebling Fund LP, a New York City-based fund of funds that invests in about 10 different low-volatility strategies. George Abraham, a hedge fund manager for he Arlington, Virginia-based biotech fund Friedman Billings Ramsey, underscored biotech is a long-term strategy. He noted between research trials and waiting for Food and Drug Administration approval, the final product can take up to 10 years to appear, and, consequently show a profit.
Many in the industry are predicting distressed debt may provide lucrative opportunities, but they underscored this is a risky strategy. Gradante said while most in the industry feel distressed debt will do well, he feels it is premature to say there is an abundance of opportunity in the market. Scott Reid, managing director of the Portfolio Management Group, said distressed debt will be a challenging place to make money, as it always has been.
“There are opportunities and you have to be very, very selective.” He emphasized highly experienced managers will probably see the best results. Emphasizing the risk, Gradante noted a slew of big-name companies are in danger of going out of business, such as Xerox, Friend’s Ice Cream, Grand Union Supermarkets, Rand McNally, TransWorld Airlines and Chiquita Banana. “There are winners and losers,” Gradante said.
“Those companies that were ahead of the [technology] curve are taking market shares away from the weaker companies.” Institutions may want more hedge fund investments, but that doesn’t mean hedge funds necessarily want their money. Many hedge funds are not eager to take institutional money, noted Aaron.
Echoing Aaron, Gradante estimated 40-50% of hedge fund managers are not interested in taking institutional money. Still, recently some larger hedge funds have shown an increased interest in courting institutional investors, he added.
A key breakthrough for pension funds investing in altenatives came in the summer of 1999, when The California Public Employees’ Retirement System announced it was planning on investing a whopping $11.25 billion in hedge funds, noted Jones.
Although the initial commitment was later decreased to $1 billion, in the nearly two years since then, other pension plans have followed suit, significantly increasing their involvement with alternative investments. And the same trend is beginning in several European and Asian countries. The choppy markets of last year, coupled with the sector’s strong performance has opened the doors to making institutions increasingly important investors in the sector.
Copyright 2001 by Pamela Appea.
Alternative Investment News, of Institutional Investor.
By Pamela Appea
Alternative Investment News
The numbers are in—hedge funds are out front, driving institutions to allocate into the arena. With alternative investments beating the traditional stock and bond markets, institutional investors are expected to continue their move into hedge funds in 2001.
Buoyed by the sector’s strong performance, in general, many investment officers at pension plans, foundation and endowments are looking at entering or increasing their investments in these alternatives, consultants said. Hedge fund managers also report an uptick in interest from institutional investors.
“Last year told the story, and that convinced people who were sitting on the fence,” said Terry Jones, managing director at New York-based Arden Asset Management, a market-neutral fund of funds. “They really had to see it to believe it.”
Indeed 2000 was a banner year for hedge funds which, according to the Hennessee Hedge Fund Review returned 6.25% for the year, outperforming the Nasdaq Stock Market (-39.72%), the Standard & Poor’s 500 Index (-9.73%) and the Lipper Mutual Fund index (9.54%.)
“Last year was the first year, in perhaps five, that hedge funds really proved the mettle,” added Ross Ellis, a consultant at Oaks, Pennsylvania-based SEI investments.
Charles Gradante, a principal at the Hennessee Group, said it is clear that more institutions are choosing to invest with hedge funds. Preliminary figures from the Hennessee Group’s soon-to-be-completed annual survery show a large jump in institutional investors.
“The initial results ….indicate …2001 will entail the largest increase in institutional allocations to hedge funds—ever,” Gradante said.
Market Neutral, Arb Strats Seen as Top Picks
Market neutral hedge funds, which returned 7.05% last year, according to the Hennessee Hedge Fund Review, will continue to be in top demand, predicted consultants and hedge fund managers. These funds have relatively low votality, and though their returns may fall far short of stellar, they ae uncorrelated to traditional bond and stock markets. Because of the sector’s characteristics, Joseph Aaron, president of the hedge fund consultancy Wood, Hat & Silver said he felt it would continue to be a good fit for institutional investors.
Merger and convertible arbitrage strategies, which according to Hennessee, returned 17% and 8.61% in 2000, will also be strong draws for institutional monies, predicted Jones. Whereas most hedge funds often tinker with their styles, the arbitrage strategists tend to stay more true to form, he noted. Institutional investors are far less tolerant to style drift than affluent investors.
For those looking for higher returns and willing to take on more risk, healthcare/biotech and distressed debt strategies are worth watching, consultants recommended. The healthcare/biotech sector which was the top-performing last year, at 62.37% could present a high-risk high-reward opportunity through the first half of the year, predicted Richard
Bookbinder, a general partner and portfolio manager for Roebling Fund LP, a New York City-based fund of funds that invests in about 10 different low-volatility strategies. George Abraham, a hedge fund manager for he Arlington, Virginia-based biotech fund Friedman Billings Ramsey, underscored biotech is a long-term strategy. He noted between research trials and waiting for Food and Drug Administration approval, the final product can take up to 10 years to appear, and, consequently show a profit.
Many in the industry are predicting distressed debt may provide lucrative opportunities, but they underscored this is a risky strategy. Gradante said while most in the industry feel distressed debt will do well, he feels it is premature to say there is an abundance of opportunity in the market. Scott Reid, managing director of the Portfolio Management Group, said distressed debt will be a challenging place to make money, as it always has been.
“There are opportunities and you have to be very, very selective.” He emphasized highly experienced managers will probably see the best results. Emphasizing the risk, Gradante noted a slew of big-name companies are in danger of going out of business, such as Xerox, Friend’s Ice Cream, Grand Union Supermarkets, Rand McNally, TransWorld Airlines and Chiquita Banana. “There are winners and losers,” Gradante said.
“Those companies that were ahead of the [technology] curve are taking market shares away from the weaker companies.” Institutions may want more hedge fund investments, but that doesn’t mean hedge funds necessarily want their money. Many hedge funds are not eager to take institutional money, noted Aaron.
Echoing Aaron, Gradante estimated 40-50% of hedge fund managers are not interested in taking institutional money. Still, recently some larger hedge funds have shown an increased interest in courting institutional investors, he added.
A key breakthrough for pension funds investing in altenatives came in the summer of 1999, when The California Public Employees’ Retirement System announced it was planning on investing a whopping $11.25 billion in hedge funds, noted Jones.
Although the initial commitment was later decreased to $1 billion, in the nearly two years since then, other pension plans have followed suit, significantly increasing their involvement with alternative investments. And the same trend is beginning in several European and Asian countries. The choppy markets of last year, coupled with the sector’s strong performance has opened the doors to making institutions increasingly important investors in the sector.
Copyright 2001 by Pamela Appea.
Alternative Investment News, of Institutional Investor.
posted by Pamela Appea at 5:00 PM
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