Hennessee Publishes Annual Hedge Fund Survey

by Phillip Morton, Investors Offshore.com

09 July 2004

The Hennessee Hedge Fund Advisory Group on Tuesday announced the results for its Seventh Annual Hennessee Hedge Fund Investor Survey which showed that performance met or exceeded expectations for 88% of investors.

According to the survey, the 34% growth in hedge fund assets from $592 billion to $795 billion was the third largest increase since it began in 1998 and indicated that portfolios are becoming more diversified and risk aware.

While the Hennessee Hedge Fund Index finished up +19.69% in 2003, it was outperformed by the major stock market indices: the S&P 500 finished up +28.55%, the Dow Jones rose +25.33%, and the NASDAQ increased +50.01%. However, the survey noted the hedge funds were hindered by the “liquidity driven conditions that defined 2003.”

Elizabeth Lee Hennessee, Founder and Managing Principal of Hennessee Group LLC observed: “The industry has matured since my first introduction to hedge funds in 1980 and investors are becoming far more comfortable with hedge funds as an asset class.”

“Someday, we believe it will be considered imprudent not to include hedge funds within a stock and bond allocation,” added Ms. Hennessee.

Other key findings resulting from the survey include:

• Since the beginning of 2000, the hedge fund industry has grown by 145%, from $324 billion to $795 billion.
• 62% of endowments that invest in hedge funds expect to increase their hedge fund allocation.
• The average hedge fund investor continues to have approximately 30% of their investable net worth allocated to hedge funds.
• 62% of hedge fund investors use a formal allocation process for their traditional investments, however, only 49% use a formal allocation process for their hedge fund investments.
• 42% of investors use a consultant for their hedge fund investments, a 68% increase from 1999.
• The hedge fund style most frequently chosen by investors was distressed, appearing in 63% of hedge fund portfolios, followed by event driven (56%) and convertible arbitrage (55%).
• Hedge fund investments are being funded out of traditional, long only investments. 70% of individuals/family offices that invest in hedge funds use them in place of traditional, long only investments.

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