Those investors that are too small to trade alongside their hedge fund counterparts are showing other signs of optimizing their approach to portfolio construction. Several survey respondents discussed their move to create opportunistic allocations that they saw existing outside their core hedge fund holdings. In most instances, these investors were looking to take advantage of idiosyncratic niche or “exotic” alpha opportunities over a specified lifecycle.

More than Just “Alpha”

Once known for seeking “alpha” or excess return beyond a benchmark, hedge fund managers are leveraging the broad investor community’s increased focus on categorizing the types of “beta” risk in a portfolio and how to improve upon those return streams. This is an extension of a trend of institutional investors having moved from singular “hedge fund” exposures to a more nuanced approach, where different investment strategies fall into categories based on risk profile, transparency, liquidity and directionality.

In some instances, this led to more hedge fund managers being given allocations to run long only funds as assets under management in this category rose to a new record of $183 billion in 2013. In other instances, the drive to identify diversifying or alternative beta streams allowed for the successful launch of niche, specialist strategies that invest in assets that provide revenue streams un-correlated to the securities markets such as airline leases and other real asset based strategies.

The full report can be viewed at: Citi Investor Services Annual Hedge Fund Survey May 2014

Citi, the leading global bank, has approximately 200 million customer accounts and does business in more than 160 countries and jurisdictions. Citi provides consumers, corporations, governments and institutions with a broad range of financial products and services, including consumer banking and credit, corporate and investment banking, securities brokerage, transaction services, and wealth management.

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