Investor Satisfaction With Hedge Funds Falls

Aug 26 2014 | 7:48am ET

Hedge funds may have posted uninspiring returns over the past 12 months, but that doesn’t mean that investors are unsatisfied.

Preqin’s biannual poll of institutional investors found that 72% say their hedge-fund returns have met or exceeded expectations over the past year—and that 89% plan to maintain their allocation to the space, or increase it. The happiness with their hedge-fund investments comes even as the industry has failed to keep pace with a broad stock-market rally.

To be sure, investor satisfaction has dropped from 84% at the end of last year and 74% at this time last year. And fewer institutions say that their hedge-fund investments have exceeded expectations: Only 9% report that level of happiness, the lowest since the end of 2012.

Despite that decline in satisfaction, only 11% of investors say they plan to cut their hedge fund investments over the next 12 months, and only 15% say the same about the longer term. By contrast, 34% plan to increase their hedge-fund investments in the next year and 35% over the longer term.

Those new allocations, however, are expected to be relatively small. Some 59% of investors planning to boost their hedge-fund exposure plan to add less than $49 million to the industry, with 38% saying they’ll hire only one or two new managers.

Nearly a third of respondents identified regulation as a key issue facing the industry. Nearly half of institutional investors expect new rules to change hedge funds for the better.


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