Fund of hedge funds is still the most popular alternative investment asset class, grabbing 44% of all new money pouring into the $1.26 trillion industry, but slightly down from the 50% level in 2004, says Watson Wyatt Worldwide. Last year, according to the research conducted in conjunction with Global Alternatives magazine, FoHFs added an estimated 85 billion to its coffers, followed in popularity by real estate ($59 billion, or 30%), private equity funds of funds ($42 billion, or 21%) and commodities ($10 million, or 5%). The survey did not list direct hedge fund investment as an asset class since, according to Paul Deane-Williams, most WWW clients go the FoHF route. Pension plans increased its investment in alternatives by 24% to $77 billion, with real estate their favorite class (35%), with funds of hedge funds close behind (34%), p.e FOF (25%) and commodities (6%). Pension plans now constitute the single largest alternatives investor, representing 37% of the total, followed by “other institutions” (23%), high net-worth individuals (16%), mutual funds (13%), insurance companies (9%) and foundations and endowments (3%). “As alternative investments become more acceptable,” Roger Urwin, WWW’s global head of investment consulting, said, “pension fund trustees are more prepared to increase the number of different alternative asset classes in their portfolios, thereby maximizing performance potential compared with mainstream asset classes, while reducing risk.” Urwin further noted that private equity is “rapidly gaining acceptance” among pensions funds globally as “a logical additions to their portfolios, despite large governance budget requirements.”
