(December-2003) Hedge funds almost the ‘in’ thing

Volatile equity markets over the past two years have seen hedge funds move further towards the mainstream for Australian institutional investors, according to the sixth Global Report on Alternative Investing released by Goldman Sachs International and Russell Investment Group.

Director of Russell’s institutional business in Australia, Stephen Roberts, says it is clear from the 2003 survey results that alternative investments are an increasingly important part of institutional investment portfolios in Australia and around the world.

“With each survey we discover institutions taking even greater advantage of the benefits provided by these investments,” he says.

Hedge funds appear to have been a particular winner in Australia, with the survey showing that while institutional acceptance is still in its infancy, the number of respondents reporting that they invest in hedge funds had grown from one in 2001 to seven in 2003.

In addition, it showed the number indicating they intend to invest in hedge funds rose from two in 2001 to nine in 2003.

“Among those that invest in hedge funds, allocations are relatively high, with the average allocation among respondents in 2003 being 11.2 per cent,” Roberts says.

“Moreover, 80 per cent indicate that their allocation will rise in the next three years and no respondents say it will decline.”

The survey says that Australian respondents tend to invest in external hedge fund structures with the majority (71 per cent) opting for fund of hedge funds while 21 per cent opted for single hedge funds.

“A hedge fund adds a new level of diversification, potentially lowering risk while adding long-term performance to an otherwise traditionally invested portfolio,” Roberts says.

He adds that while hedge funds are inherently risky, one way to reduce risk is to use a hedge fund that features a multi-hedge fund approach.

The report suggests that real estate is the most important alternative investment in Australia, with 80 per cent of respondents investing in real estate, with an average strategic allocation of 11.5 per cent.