Dramatic Increase in Institutional Investor Demand for Hedge Funds to Transform the Industry, According to Study by the Bank of New York and Casey, Quirk & Acito.

NEW YORK -- Capital Source Transition and Modest Return Expectations Among Factors Driving Industry Maturation

Institutional investors' appetite for hedge funds will dramatically increase over the next five years, causing a significant shift in the structural and operational underpinnings of the hedge fund industry, according to a study of leading institutional investors and hedge fund managers released today by The Bank of New York and Casey, Quirk & Acito LLC.

The study, entitled "Institutional Demand for Hedge Funds: New Opportunities and New Standards," found that U.S. institutional investors' capital for hedge funds could increase from its current $60 billion to $300 billion by 2008. Defined benefit pension plans are expected to represent the fastest growing source of institutional capital as investment policies and legislative changes facilitate new hedge fund strategies.

"The increasing influence of institutional investors in alternative investments and particularly hedge funds will dramatically change the way firms operate and define success," said Brian Ruane, executive vice president at The Bank of New York. "Successful hedge fund firms will have to balance investment excellence with business, operations and client service acumen if they expect to attract a meaningful share of this capital."

According to the study, institutions will place a greater emphasis on lower volatility and risk as more capital flows into hedge funds. Institutions will also lower their return objectives to a relatively modest 8% annually.

The study also found that funds of hedge funds will maintain their current 50% share of institutional capital with little evidence that institutions will eventually favor total direct investing into individual hedge funds.

"Interestingly we found that managers of funds of hedge funds are beginning to serve in a more consultative capacity with institutional investors - they are counted on as trusted overall advisors, providing manager search, strategic and tactical asset allocation guidance, and risk monitoring," said Chris Acito, principal of Casey, Quirk and Acito.

The study defined several attributes that will characterize the hedge fund firms best able to attract institutional capital, noting that many will be severely challenged by institutional investors to meet new stringent professional requirements.

"A great many of today's hedge fund managers are unlikely to be able to meet the new requirements of institutional investors," said Ruane. "That suggests a shakeout in the industry moving forward with the next great generation of hedge fund firms only starting to emerge."

Results from the study were compiled from one-on-one interviews with over 50 leading U.S. and European institutional investors and hedge fund managers, primary survey research of more than 80 institutional investors and hedge fund managers, and using secondary sources to create a database of 400 U.S. institutions identified as currently making hedge fund investments.

Casey, Quirk & Acito LLC (CQA) provides management consulting services exclusively to investment management firms. CQA specializes in developing business strategy and planning, enhancing investment practices, and crafting distribution policies. CQA draws on 35 years of experience in delivering value to its clients and partners through a unique combination of deep industry knowledge and experience, solutions-oriented thought leadership, and a proven ability to create change within organizations.

The Bank of New York Company, Inc. (NYSE: BK) is a global leader in securities servicing for issuers, investors and financial intermediaries. The Company plays an integral role in the infrastructure of the capital markets, servicing securities in more than 100 markets worldwide. The Company provides quality solutions through leading technology for global financial institutions, asset managers, governments, non-profit organizations, corporations, and individuals. Its principal subsidiary, The Bank of New York, founded in 1784, is the oldest bank in the United States and has a distinguished history of serving clients around the world through its five primary businesses: Securities Servicing and Global Payment Services, Private Client Services and Asset Management, Corporate Banking, Global Market Services, and Retail Banking. Additional information on the Company is available at www.bankofny.com.