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Cerulli finds institutions look to hedge funds for risk management and diversification

Wednesday, September 11, 2013
Opalesque Industry Update - Institutions look to hedge funds for risk management and diversification according to new research from Cerulli Associates, a Boston-based global analytics firm.

"Numerous institutions are using hedge funds to reduce risk in their investment portfolios," reveals Michele Giuditta, associate director at Cerulli. "Our research shows that institutional investors overall have been steadily increasing the portion of their assets allocated to hedge funds over the past five years. Endowment funds, family offices, and foundations were early adopters and currently remain established investors."

The September 2013 issue of The Cerulli Edge-U.S. Asset Management Edition examines how asset managers balance risk, providing a close look at request for proposal and database teams, exchange-traded funds, and alternative investments.

"Asset managers have refined their approach to asset allocation over the past several years to emphasize risk-based approaches," Giuditta explains. "Using a risk-based lens, managers aim to adjust their portfolios to offset periods of extreme volatility and market stress that may affect both equity- and credit-related investments in the same ways."

"Institutional investors have been under significant pressure since 2008 to increase their portfolio returns without inflating their risk profiles," Giuditta continues. "That is a tall order, and it has led many institutional managers toward a renewed interest in developing hedge fund products."

More recently, asset managers are experiencing demand for a range of hedge fund strategies, in particular, credit-related, global macro, and event-driven. Cerulli believes that demand for these products should continue in the near term, given the low interest rate environment, ongoing global financial uncertainty, and steady merger and acquisition activity.

Press release

bc

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