Investors Predict Record HF AUM, Favor Event-Driven Funds

Mar 11 2014 | 10:39am ET

Hedge fund investors expect industry assets under management to grow 12% this year to an all-time high of $2.8 trillion, according to new research from Credit Suisse.

The bank polled 500 respondents—including pension funds, endowments, consultants, family offices and funds of hedge funds—representing $1.16 trillion in hedge fund investments for its sixth annual Hedge Fund Investor Survey.

Robert Leonard, global head of capital services at Credit Suisse, said some investors polled expect hedge fund AUM to hit $3 trillion this year.

“If accurate,” Leonard said in a statement, “this updated forecast would mean at least an additional $300 billion for the industry in 2014, coming from both performance and new capital inflows.”

Leonard said investors are generally more optimistic about hedge fund industry performance, increasing their expectations for returns this year.

The survey also measured investor preferences by strategy, noting an increase in appetite for event-driven strategies and a decline in interest in emerging markets strategies.

“[N]one of our respondents expect to decrease their allocations to [event-driven strategies], reflecting a unanimous vote of confidence. This level of increased interest was matched in magnitude only by the drop in appetite for emerging markets, which fell precipitously.”

Investors remain enthusiastic about equity long/short strategies, “pointing to an environment ripe for stock selection with decreased correlations and higher dispersions of returns.”

The survey also found that, despite modest returns in the past two years, global macro strategies are forecast to be among the top three best-performing strategies in 2014 with discretionary macro expected to be an area of particular focus for investors this year.

The survey also noted shifts along regional lines, with investors showing more interest in developed Europe (43%) and Japan (33%). Net demand for North American strategies stood at 15%, up marginally from 2013. Emerging markets rated only 10% net demand, down sharply from 42% in last year’s survey.

Investors preferred management fee discounts to incentive fee discounts by a magnitude of 3:1. One-third of investors named hurdle rates as their preferred fee structure incentive.

The survey found “strong, though selective” appetite for new hedge funds, provided they were of institutional quality. A full 40% of investors is open to investing in a new fund with a Founder’s Share class; 11% indicated interest in a seed investment with economic interests; and only 6% would be a day-one investor without any economic concessions.

Fund size continues to be a factor in allocations—twice as many investors would allocate to funds with AUM over $100 million as to funds with under $50 million.

Investors anticipate potential capacity constraints in 2014, as some fund managers return money and/or close to new capital while others decide to leave the business completely. Some respondents also indicated that this could be an opportunity for newer and mid-sized funds to raise additional capital this year.

Investors cited crowded trades/herd behavior, risk complacency and funds chasing equity markets as their top three concerns.


In Depth

Fitch Says Alternative Asset Managers 'Stable' Despite Dry Powder

Nov 20 2014 | 9:30am ET

Ratings agency Fitch says the outlook for seven publicly traded alternative asset...

Lifestyle

Cohen Buys $101 Million Sculpture

Nov 12 2014 | 9:17am ET

Steven Cohen was the sole bidder for a rare Alberto Giacometti sculpture at Sotheby...

Guest Contributor

Why The Big Money Is Going To Europe

Nov 14 2014 | 6:03am ET

Peer-to-peer lending was invented with the individual investor in mind. But despite...

 

Sponsored Content

    For Hedge Funds, Mastering Data Is Key To Success

    Nov 4 2014 | 9:45am ET

    Data management is important to every business, but for hedge funds, it is critical. FINalternatives recently asked Peter Sanchez, CEO of Northern Trust Hedge Fund Services, how fund managers can deal with the demands of managing data while at the same time remain transparent and abide by operational best practices. Read more…

Editor's Note

    Guidelines for Guest Articles

    Oct 22 2014 | 9:46am ET

    We are always looking for guest articles from hedge fund managers and buy-side firms.

    If you are interested in submitting a contributed piece for possible publication on FINalternatives, please take a look at the specs. Read more…

 

Futures Magazine

November 2014 Cover

Building a better market

Reg NMS created a huge bifurcation in equity markets and while much of what has followed has been positive, in terms of lower fees and greater liquidity, many traders would like to see the market come...

The Alpha Pages

TAP July/August 2014 Cover

The Alpha Pages Interview: Senator Rand Paul

Senator Paul sat down in the debut series of the Alpha Pages Interview to discuss the broken tax code, regulation surrounding Bitcoin, and his plans for the 2016 Presidential election.