A Closer Look at State Street’s New Hedge Fund Survey
Mar 22nd, 2007 | Filed under: Performance, Analytics & MetricsOn Wednesday, State Street released the findings from its survey of institutional investors at October’s Global Absolute Return Congress (”Global ARC”) in Boston. The firm surveyed pensions & endowments that they say were collectively responsible for US$1trillion of assets. Unlike a similar industry survey conducted by Deutsche Bank in January, this one did not include funds of hedge funds. As regular readers may recall, we felt that aggregating data from funds of funds along with data from pensions & endowments (”end investors”) may have skewed the results. We can see some evidence of this by comparing the State Street and DB studies.
In our opinion, funds of funds are more likely to be unsatisfied with hedge funds than are end investors. The DB report suggested that investors were dissatisfied with hedge funds:
“…73% of investors worldwide report that they have had difficulty finding managers that live up to their expectations.”
Interestingly, when the same question was posed to only the end investors, the results were markedly different. Said State Street:
“…hedge funds got higher marks for increasing absolute portfolio returns this year—the ultimate test—with 65% saying their hedge fund investments matched their expectations with regard to raising the absolute return of their portfolios (versus 57% last year).”
In fairness, States Street did find that end investors were somewhat less satisfied with the volatility and market correlation of their hedge funds. But the ”unsatisfied” numbers were all far below 50%.
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I love your blog. It is by far the best blog on the web. However, I need to point out a slight misrepresentation between the two studies. The DB study observed that 73% of investors are unsatisfied with their return expectations. While, the State Street study observed that 65% of investors are satisfied with their volatility expectations. This is a major difference. It would be like comparing apples to oranges.
Once again, this is a great blog, keep up the great work!!
Thanks for the kind words.
You are right that it’s very tough to compare the two studies. One was conducted on a large sample and one was conducted on a sub-set of institutions that feels strongly enough about alternatives to attend a major conference on the topic. However, the State Street study says 65% of respondents believe hedge funds “raise my portfolio’s absolute return” and “lower my overall portfolio’s volatility” (a tie at 65% for both responses). We took both of these results - along with a 74% satisfaction with the diversification properties of hedge funds - as general evidence of contrary findings to the DB study.
Food for thought - and for discussion - at least. Thanks for the comment.