Institutional investors sticking with alternatives

The current market turbulence combined with some spectacular scandals has not yet jarred institutional investors from their investment strategies, according to the results of a survey conducted last month. A survey of 50 institutional investors from around the world showed that 77% said they remain confident and will continue to invest, particularly in alternatives such as hedge funds. The survey, which was conducted by London-based research firm Preqin Ltd., posed some of the questions in the context of the alleged Ponzi scheme involving Bernard Madoff. “Institutional investors appear remarkably unfazed in light of the Madoff scandal and the underperformance of many hedge funds in 2008,” said Amy Bensted, a Preqin spokeswoman. “Although investors will be carrying out more stringent due diligence checks on potential funds, they have not significantly changed what they are looking for in managers, which means the first-time or emerging fund managers out there can still expect inflows of capital from the institutional market,” she added. When asked if the Madoff scandal has altered the way the institutional investors evaluate portfolio managers, 85% of survey respondents said they had not introduced any significant changes to their research process. Regarding hedge funds, which generated an average loss of 13.5% in 2008, 42% of survey respondents cited among their top concerns a need for greater transparency. Other important issues were increased liquidity, lower fees and a need for more risk-management measures. While Mr. Madoff was not operating a hedge fund, the alleged $50 billion scheme was significant enough to spark concerns over the need for third-party administrators and custodians, according to the survey findings. The use of independent administrators and custodians was listed as being extremely important by 80% of the survey’s respondents. More than a third of the investors surveyed said they were not satisfied with the quality of information regarding liquidity and fund reporting they currently receive from fund managers.