Institutional investors, which make up 65% of hedge fund assets under management, have three main objectives for allocating to hedge funds: achieving risk-adjusted returns uncorrelated to equity markets, reducing portfolio volatility, and mitigating risks elsewhere in their portfolios. Most institutional investors measure hedge fund performance against customized benchmarks rather than broad market indices, and over 80% believe their portfolio risk would rise without hedge funds. Overall, 67% of institutional investors have been satisfied with their hedge fund returns meeting 4-6% annualized targets, and 71% plan to maintain or grow their hedge fund allocations in the coming year.

1. JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC
Institutional investors’ top objectives
for hedge fund allocations
How do investors measure hedge
fund performance?
65%of the hedge fund industry’s
assets under management are
from institutional investors.
• RISK-ADJUSTED RETURNS THAT ARE NOT CORRELATED TO EQUITY MARKETS
• TO REDUCE VOLATILITY WITHIN A PORTFOLIO
• TO MITIGATE RISKS IN OTHER AREAS OF THEIR
INVESTMENT PORTFOLIO
CORPORATE
AND PUBLIC
PENSION PLANS
UNIVERSITY
ENDOWMENTS
CHARITABLE
FOUNDATIONS
MEASURING HEDGE
FUND PERFORMANCE
Investors Weigh In
I N S T I T U T I O N A L I N V E S T O R S I N C L U D E :
67% OF INSTITUTIONAL INVESTORS
SEEK ANNUALIZED HEDGE FUND
RETURNS BETWEEN 4%-6%
80%believe that their portfolio risk
would increase if hedge funds
were removed from their portfolios.
I N F A C T
Each hedge fund employs
a unique strategy and
trading style.
Similarly, each investor partners with a
hedge fund to achieve a unique goal
within their investment portfolio.
BUT, THE MAJORITY OF INVESTORS
VIEW THESE BROADER COMPARISONS AS
IRRELEVANT, DEVELOPING SEPARATE, MORE
ACCURATE MEASUREMENTS TO DETERMINE IF
HEDGE FUNDS ARE MEETING THEIR GOALS.
36%
29%
of investors use separate benchmarks to
measure separate hedge fund strategies
use a single benchmark to measure
their entire hedge fund portfolio
24%of investors believe the S&P 500 and
other public indices are no longer
relevant to hedge fund performance
OBSERVERS OUTSIDE THE INDUSTRY FREQUENTLY COMPARE
HEDGE FUND PERFORMANCE TO BROADER, UNRELATED
MEASUREMENTS LIKE THE PERFORMANCE OF THE S&P 500 INDEX.
How do Hedge Funds Size Up?
OF INSTITUTIONAL INVESTORS
FEEL THAT OVER THE PAST 12
MONTHS THEIR HEDGE FUND
ALLOCATION RETURN
EXPECTATIONS HAVE BEEN MET
OR EXCEEDED.
OF INSTITUTIONAL INVESTORS
PLAN TO MAINTAIN OR GROW
THEIR HEDGE FUND ALLOCATIONS
OVER THE NEXT 12 MONTHS.
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@MFAUpdates
Data source: Preqin Special Report:
The Real Value of Hedge Fund
Investment, June 2014