Move over performance, philosophy and pedigree: A new Deutsche Bank report says that investors now rate transparency and risk management among their top five manager selection criteria.
Forty-three percent of investors said they would be more likely to make a proportion of their investments through managed accounts in the future, citing liquidity, transparency and risk management benefits, according to the report, which surveyed 1,000 investors, including funds of hedge funds, family offices, and pension funds.
“Transparency, risk management and liquidity are now top priorities for investors as they select their hedge fund managers,” said Jonathan Hitchon, co-head of global prime finance at Deutsche Bank. “As a result, we have seen managers of various strategies adjust their structures accordingly.”
The report also said that 72% of hedge fund investors have reduced their exposure to leveraged investments and 63% are not interested in applying leverage to their own portfolios this year. Investors are sitting on $294 billion of cash and collectively expect to reduce this over the next six months to $212 billion, if the markets remain stable. And larger funds continue to grow and a premier league of hedge funds is emerging: Fifty percent of respondents said they plan to invest in hedge funds with average assets under management of $800 million to $4 billion this year.
Also, macro, commodity trading advisor and equity long/short are predicted to be the best-performing strategies this year. On the other hand, merger arbitrage, event-driven and asset-backed securities are predicted to be the worst-performing strategies.
Additionally, the survey indicates that a majority of investors expect their own hedge fund portfolios to generate returns of 5% to 10% this year, according to Scott Carter, head of the hedge fund capital group in North America.