Investors remain bullish on industry growth – hedge funds are expected to reach a record breaking
Commitment from institutional investors continues to strengthen – nearly half of institutional investors increased their hedge fund allocations in 2013, and 57 per cent plan to grow their allocations in 2014. Institutional investors now account for two thirds of industry assets, compared to approximately one third pre-crisis
Investors are happy with hedge fund performance - 80 per cent of respondents state that hedge funds performed as expected or better in 2013, after their allocations returned a weighted average of 9.3 per cent in 2013. 63 per cent of respondents, and 79 per cent of institutional investors, are targeting returns of less than 10 per cent for their hedge fund portfolios in 2014. Equity long short and event driven are the most sought after strategies.
2 & 20 is not the norm - Investors today pay an average management fee of 1.7 per cent, and an average performance fee of 18.2 per cent. While fees have come down slightly, investors remain willing to pay for performance: almost half of all investors would allocate to a manager with fees in excess of 2&20 where the manager has proven 'consistent strong performance in absolute terms'.
A bigger part of a bigger pie – hedge funds get reclassified. 39 per cent of investors are now embracing a risk-based approach to asset allocation, up from 25 per cent in 2013. 41 per cent of pension consultants recommend this approach to clients. The risk-based approach effectively removes historical constraints on the percentage allocation to absolute return strategies, allowing equity long/short managers to compete with long only and fixed income absolute return funds within the overall fixed income risk budget.
Allocators from 29 different countries completed the survey. Approximately half (46 per cent) of responding investors manage
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