29/04/2013
Hedge fund indices becoming more popular with institutionals
A growing number of institutional investors are considering allocating assets to alternative indices as a new active approach to beta management, according to a study by Northern Trust of 51 institutional investors representing cumulative assets of USD800bn under management.“Rather than considering investment strategy options as active or passive, investors are now considering that there is a continuum of options within beta solutions, with traditional indices weighted by cap-sizes on one hand, and 10)% active strategies on the other,” explains John Krief, managing director of asset management for Europe, the Middle East and Africa (EMEA) at Northern Trust.Among the institutionals surveyed by Northern Trust, three out of ten are invested in alternative indices, while 32% are considering using these indices. Among those who already use them, six out of ten say that they have increased their allocation in the past two years.Alternative indices are attractive to investors, since they allow access to returns, while capturing exposure to specific factors such as value momentum and volatility. But the study finds that taking a decision to invest in a hedge fund, and choosing which index to invest in, represent active decisions: 60% of investors surveyed say that the decision to allocate to an alternative index is equivalent to an active investment decision, and required the same level of due diligence. The study finds that value and low volatility are the factors most sought after by investors (more than 50% of respondents), and that the vast majority of them (over 92%) say that they are seeking to reduce risk via exposure to alternative indices. Diversification is also cited by 84.6% of investors, while only 54% mention returns.
