2013 global hedge fund and investor survey
Few words resonate as strongly with managers and investors as “growth.” Despite numerous challenges, managers remain cognizant of the need for long-term growth solutions.
Most managers report net inflows.
Nearly two in three managers report net inflows for 2012. Managers in Asia were the most successful in raising capital, with a 25% increase. Also, investors have begun to reinvest in Europe after an exodus during the past few years.
As for North America, our data suggests that there is no net new investment but rather a reallocation among managers as the competition for capital intensifies.
The largest managers have been the most successful in attracting capital.
Almost 90% of net inflows in 2012 were to hedge funds with more than US$10b under management.
Larger funds continue to attract capital as they diversify their offerings and provide customized solutions for investors. Smaller funds that do not grow their asset bases quickly will have difficulty surviving given current regulatory and infrastructure demands.
The largest managers are budgeting for 10% growth in 2013. Those with less than US$10b under management are even more bullish, budgeting for 15% growth.
Obstacles to growth remain.
Fees and performance continue to be the largest obstacles for institutional investors when considering hedge fund allocations, followed by risk tolerance. Although performance has improved, investors have not forgotten the lackluster performance of previous years.
“There is a place for hedge funds in the portfolio ... in terms of diversity, but the investment committee is very hung up at the moment on fee costs.”
— Investor, Europe
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Managers believe that new strategies and products will attract investors.
Hedge funds, particularly large ones, have begun to offer non-traditional products to attract capital. The strategy appears to be successful.
We see demand from institutional investors for registered alternative funds, long-only funds, UCITs (in Europe) and other products.
Demand for customized solutions is robust.
Nearly two-thirds of investors either already invest, or would like to invest, in a customized solution. Demand is most robust among funds of funds.
Managers in North America are responding to the demand more quickly than those in Europe. We found that 75% of North American managers offer customized solutions (or plan to) versus 50% of their European counterparts.
One in three managers requires a minimum investment of over US$100 million for a customized solution.
Beyond that overall finding, we uncovered significant differences between regions with respect to minimum commitments.
North American managers in particular require a larger minimum. In a clear bid to attract capital, Asian managers require lower minimum commitments.
Direct investment is increasing
More than 75% of hedge fund managers in Europe and North America say that direct investment has increased. Most expect the trend to continue.
The trend is more pronounced in North America, where 60% of investors say they prefer direct investment. For these investors, the cost of intermediation has become too expensive at today’s rates of return.
The increased activity &mdash often with the assistance of investment consultants — is taking place as funds of funds continue to lose traction due to cost pressures.
Managers clearly prefer direct investment over funds of funds
It’s not surprising that managers prefer direct investment. Capital invested directly tends to be stickier, and investments tend to be larger.
However, marketing directly to institutional investors requires sales and service infrastructure akin to those of traditional money managers that sell to this market.