Survey Shows Boom Year For Hedge Funds In 2001

by Carla Johnson, Investors Offshore, London

15 April 2002

The Hennessee Hedge Fund Advisory Group, a global hedge fund investment consulting firm, recently completed its Fifth Annual Hennessee Hedge Fund Investor Survey. In the face of difficult and volatile equity markets, survey results indicate that hedge funds met or exceeded expectations for 85% of hedge fund investors. This, in addition to the 38% growth in industry assets, illustrates that hedge funds are growing in use for portfolio diversification and downside risk protection.

According to the survey, the majority of hedge fund investors expect to increase their allocations to the industry over the next year, with 54% of respondents planning to increase their hedge fund allocation, and 40% intending to increase their fund of funds allocation.

Fund of funds seem to be the fastest growing group of hedge fund investors. They made up 3% of hedge fund investments in Hennessee's 2001 survey but 15% this year. Individuals and family offices continue to be the largest group of hedge fund investors. They contribute 56% of the capital to the industry, according to the survey. They often use funds of funds to get into the industry. With the growth in the industry, more investors are turning to consultants for advice. 41% indicated they use a consultant, up from 29% in the 2001 survey. A few years, ago wealthy individuals were responsible for close to 80% of investment in the industry, but large institutions, such as Calpers, Prudential and Sumitomo Life have recently ploughed into hedge funds.

After a difficult year for hedge funds, the survey indicates hedge fund investors are happy with their investments' performance, with only 29% saying they would have liked to get better performance. Hedge funds returned 3.98% last year, according to Hennessee, compared with an S&P 500 loss of 11.89%. Convertible arbitrage and merger arbitrage constituted the largest share of assets in the industry, with 16%, versus the 2001 survey, where event-driven and distressed comprised 16% of the industry.

"The performance of hedge funds in 2000 and 2001 has made it increasingly prudent to consider hedge funds as an investment alongside stocks and bonds," says Elizabeth Lee Hennessee, Chairman and Founder of Hennessee Group LLC. "In fact, someday, it will be considered imprudent not to include hedge funds within a stock and bond allocation," commented Charles Gradante, President and CEO.

The Hennessee Group, a pioneer in hedge fund investing, advises clients on over $1 billion invested across 125 hedge funds. All customized portfolios are built to meet the investment objectives and risk parameters of each client. Providing investment advice through "hands on" experience and offering direct client access to our managing principals, the Hennessee Group's only client is the investor. It does not market money managers or fund-of-funds products, nor is it a hedge fund tracker.

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