Investor allocation to hedge funds will continue to grow, according to Citi, despite a number of high profile divestments following recent underperformance from the asset class.

The bank’s prime services unit polled investors, mainly institutional, managing over $1trn of combined assets under management.

It found that hedge funds are the preferred choice for accessing risk premia - a concept where investors are not, per se, compensated for investing in assets, but rather they are compensated for assuming risks.

Close to 70% of respondents picked hedge funds as the number investment vehicle to access risk premia, followed by investment bank products (15% of respondents), customized solutions developed in-house (8%), and ETFs (8%).

Over 80% of respondents are currently investing in, or looking to invest in, risk premia and smart beta solutions

Meanwhile, 53% of respondents said they plan on increasing their exposure to hedge funds over the next 3 years.

It comes as New York City’s pension for civil employees voted to exit its $1.5bn portfolio of hedge funds last month and shift the money to other assets.

Insurer MetLife, which currently has $1.8bn in hedge fund investments, said last week it will redeem two-thirds of that money and redeploy it elsewhere.

A series of events across the globe hit many of the markets traded by hedge funds in 2015, meaning it was a tough year for managers. 

The volatility resulted in four months of losses from June to September, the longest losing streak for hedge funds since 2008, according to Preqin data.

By the end of 2015, hedge funds had returned just 2.02%, representing the Preqin AllStrategies Hedge Fund benchmark’s worst performance since 2011.

Last month Jack Inglis, chief executive of hedge fund trade body AIMA, said recent outflows should be taken with a pinch of salt.

“The long term evidence in favour of hedge funds is very convincing," Inglis wrote in an online post.

"Hedge funds have significantly outperformed all other major investment types over the past 25 years and have done so with less than half the volatility and risk of the equity markets."

Citi's study suggests long-term confidence in hedge funds remains strong among the institutional investor community.

63% of respondents have more than $1bn allocated to hedge funds, with half of investor allocation exceeding $2bn.

Macro, equity long-short and CTAs are the preferred investment strategies.

“Hedge funds represent a third of profits generated by the asset management industry and these findings confirm the importance of the sector to institutional investors," said Daniel Caplan, Citi's head of investor services for EMEA.

“As interest in risk premia solutions continues to rise, we expect hedge funds to play an increasingly important role in providing diversification through risk-aligned strategies.”