More than half of institutional investors in Europe are putting money into hedge funds, but relatively few have the knowledge or the plan policy to make the most of out of their investments, according to the Edhec European Alternative Diversification Practices Survey. The French business school’s study found that, while two-thirds of those polled claim they factor in risk when considering hedge fund allocation, more than half lose out on the full benefit of the allocations because they don’t distinguish between strategies or group them according to risks. In other results, the survey revealed that:
- 74% of those surveyed invest through funds of hedge funds, 37% in single hedge funds and only 2% in single-strategy indices;
- 73% manage an “optimal mix” of asset classes, lumping together active and passive products;
- 45% of the European institutional investors lacked an allocation policy, while most of the 50% that follow a quantitative approach or quantitative/qualitative approach, choose a mean/variance framework, which Edhec says is “ill-suited to the construction” of HF portfolios;
- Respondents’ average HF asset allocation was 7% of AUM.