2013 global hedge fund and investor survey
This year’s survey clearly identifies the strategic priorities foremost in the minds of respondents. There are some regional differences, but the industry generally agrees on its key challenges.
Managers are focused on growth
Two out of three managers say growth is their top priority, and they are pursuing it in multiple ways.
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Their top tactics include upgrading front-office talent, adding investment products and strategies and boosting distribution networks. Managers in developed markets focus more on distribution networks, while those in Asia focus more on upgrading talent.
Operational efficiency is a key related issue. 62% of managers say it is one of their top three priorities.
Margins are under pressure
Although two in three managers report an increase in revenue over the past year, just half report improvements in margins. One in three says margins declined.
Managers attribute the pressure to increased costs associated with regulatory reporting, technology investments and other infrastructure improvements. Mid-size firms (those with US$5b to US$10b under management) are disproportionately affected by this compression.
Investors expect to maintain current allocation levels
Nearly three out of four investors say they will not change hedge fund allocations in the next three years. A slightly higher proportion of investors say they intend to increase allocations (17%) rather than decrease them (11%).
If allocations remain mostly unchanged as expected, managers will have to find growth in other ways. Diversified products and strategies and/or alternative investment networks are two potential paths to growth.
“We’ve added a senior business development professional to develop new distribution networks. In the product category, we’re looking at European distribution and registered US products.”
— Manager, North America, under US$10b AUM
Survey respondents report hedge fund allocations of 14% on average. Those in North America report marginally higher allocations (16%) than those in Europe (12%).
However, European investors are slightly more likely to increase allocations as they look to take advantage of Europe’s continued recovery.