Investors in hedge funds look to those allocations to fulfill a number of objectives for their portfolios, according to new data from Preqin. MFA used those data to illustrate a number of important points on how investors measure hedge fund performance in a new infographic released today.
Among the top objectives for hedge fund allocations are risk-adjusted returns that are not correlated to equity markets, reduced volatility within the portfolio, and risk mitigation in other areas of their portfolios. Eighty percent of investors polled by Preqin said that their portfolio risk would increase if hedge funds were removed from their portfolios.
Investors use different tools to measure the performance of their hedge fund allocations. Preqin noted that 36% of investors use separate benchmarks to measure separate hedge fund strategies and 24% of investors believe that the S&P 500 and other public indices are no longer relevant to measuring hedge fund performance. In fact, 67% of institutional investors surveyed by Preqin seek annualized returns between 4% and 6% from their hedge fund portfolios.
Finally, 84% of institutional investors feel that over the past 12 months their hedge fund allocation return expectations have been met or exceeded. Furthermore, 87% of institutional investors told Preqin that they plan to maintain or increase their hedge fund allocations over the next 12 months.
For the unique visualization of these important stats, check out MFA’s new infographic: Measuring Hedge Fund Performance. Dive deeper into the report’s numbers with a recent MFA educational presentation, and read the full Preqin report here.