The majority (94 per cent) of pension funds are expecting a rise of at least 10 per cent in hedge fund sector fundraising over the next three years, according to research from Beacon Platform.

The study suggested that pension funds predict strong growth and attractive risk-adjusted returns in the hedge fund sector, and they are planning to support expansion with increased allocations, with 6 per cent predicting growth in hedge fund fundraising of more than 20 per cent.

Beacon’s research, which covered 33 pension funds in the US, UK, Germany, Switzerland, France, Italy, Hong Kong, and Singapore, found that 88 per cent expect the hedge fund industry to add more than $190bn in assets this year, with 27 per cent expecting it to add between $250bn and $500bn.

This comes after data from Hedge Fund Research revealed that estimated total assets under management at hedge funds hit a record $4.6trn at the end of the first quarter.

All of the pension funds questioned as part of the survey believed investing in hedge funds will be attractive in terms of risk-adjusted returns over the next five years, with 15 per cent describing it as very attractive.

However, the research showed that pension funds still have some caveats and concerns about their hedge fund investments.

In particular, pension funds highlighted concerns about the quality of information and level of risk management in their hedge fund investments.

Indeed, a large majority (88 percent) of investors agreed that the quality of information and transparency in hedge funds needs to improve, with 27 percent saying it needs to improve dramatically.

The majority (91 per cent) have also decided not to invest in a particular fund because of concerns over its risk management, and almost all (94 percent) think that this will be a growing trend.

Given this, Beacon argued that, in order to capitalise on the expected investment growth, hedge funds clearly need to focus on the quality of their risk management and have high levels of transparency that investors are increasingly demanding before investing with them.

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