When It Comes to Hedge Funds, Sovereign Investors Tread Lightly

February 10, 2015 by Loch Adamson

Compared to other institutional investors, SWFs allocate a relatively small portion of assets to hedge funds. Is that a bad thing?
Why the sovereign wealth fund parsimony when it comes to hedge funds? It reflects a combination of factors.
SWFs sinking large sums into a #hedgefund, some feel, might as well wear signs reading “Dumb Money”
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Left to right: Hedge fund directors George Soros, James Simons, John Alfred Paulson, Philip Falcone and Kenneth Griffin, testifying on Capitol Hill in Washington November 13, 2008. Credit: Reuters/Jonathan Ernst Compared to other institutional investors, like endowments, sovereign wealth funds allocate a relatively small portion of their assets to hedge funds. Is that a bad thing? When it comes to investing in hedge funds, state-owned investors keep their purse strings pulled tight. That’s the key takeaway from a new paper looking at the mean allocation to hedge funds by a variety of institutional investor classes from 2012–’14. The paper, published by the London-based Alternative Investment Management Association (AIMA), a hedge fund trade group, and the Chartered Alternative Investment Analyst Association (CAIA Association) of Amherst, Massachusetts, a non-profit education organization, found sovereign wealth funds invested just 7 percent of their assets to hedge funds in 2014. The figure has…

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