Investors take tips from Risky Business
18 February 2014 New York
Image: Shutterstock
More investors are now embracing a risk-based approach to asset allocation, and remain bullish on industry growth, found a recent survey from Deutsche Bank.
Four hundred investor entities participated in the bank’s 2014 alternative investment survey, representing over $1.8 trillion in hedge fund assets and over two thirds of the entire market by AUM.
The survey found that 39 percent of investors are now embracing a risk-based approach to asset allocation, up from 25 percent in 2013—and 41 percent of pension consultants recommend this approach to clients.
“The risk-based approach effectively removes historical constraints on the percentage allocation to absolute return strategies, allowing equity long/short managers to compete with long only and fixed income absolute return funds within the overall fixed income risk budget,” said a Deutsche statement.
Barry Bausano, co-head of global prime finance at Deutsche Bank, said: “Hedge funds continue to establish their growing position within the broader asset management industry, alongside some of the more mainstream asset managers. The hedge fund industry is predicted to reach a record $3 trillion by 2014 year end driven by significant inflows, most notably from institutional investors.”
Anita Nemes, global head of the hedge fund capital group at Deutsche Bank, said: “With the majority of investors happy with hedge fund performance, we expect institutional investors to further strengthen their commitment to hedge funds. Last year’s respondents targeted 9.2 percent for their hedge fund portfolios, and hedge funds delivered—the weighted average return for respondents’ hedge fund portfolios this year was 9.3 percent. Looking forward, respondents are targeting 9.4 percent for 2014.”
A significant finding was that investors are remaining bullish on industry growth—hedge funds are expected to reach a record breaking $3 trillion by year end 2014, up from $2.6 trillion as of 2013 year end. This is based on investors’ predictions of $171 billion net inflows and performance-related gains of 7.3 percent (representing $191 billion).
Commitment from institutional investors also continues to strengthen, and nearly half of institutional investors increased their hedge fund allocations in 2013, with 57 percent planning to grow their allocations in 2014.
Institutional investors now account for two thirds of industry assets, compared to approximately one third pre-crisis
Investors are happy with hedge fund performance, and 80 percent of respondents state that hedge funds performed as expected or better in 2013, after their allocations returned a weighted average of 9.3 percent in 2013.
Equity long short and event driven are the most sought after strategies.
Investors today pay an average management fee of 1.7 percent, and an average performance fee of 18.2 percent. While fees have come down slightly, investors remain willing to pay for performance: almost half of all investors would allocate to a manager with fees in excess of 2&20 where the manager has proven ‘consistent strong performance in absolute terms’.
Four hundred investor entities participated in the bank’s 2014 alternative investment survey, representing over $1.8 trillion in hedge fund assets and over two thirds of the entire market by AUM.
The survey found that 39 percent of investors are now embracing a risk-based approach to asset allocation, up from 25 percent in 2013—and 41 percent of pension consultants recommend this approach to clients.
“The risk-based approach effectively removes historical constraints on the percentage allocation to absolute return strategies, allowing equity long/short managers to compete with long only and fixed income absolute return funds within the overall fixed income risk budget,” said a Deutsche statement.
Barry Bausano, co-head of global prime finance at Deutsche Bank, said: “Hedge funds continue to establish their growing position within the broader asset management industry, alongside some of the more mainstream asset managers. The hedge fund industry is predicted to reach a record $3 trillion by 2014 year end driven by significant inflows, most notably from institutional investors.”
Anita Nemes, global head of the hedge fund capital group at Deutsche Bank, said: “With the majority of investors happy with hedge fund performance, we expect institutional investors to further strengthen their commitment to hedge funds. Last year’s respondents targeted 9.2 percent for their hedge fund portfolios, and hedge funds delivered—the weighted average return for respondents’ hedge fund portfolios this year was 9.3 percent. Looking forward, respondents are targeting 9.4 percent for 2014.”
A significant finding was that investors are remaining bullish on industry growth—hedge funds are expected to reach a record breaking $3 trillion by year end 2014, up from $2.6 trillion as of 2013 year end. This is based on investors’ predictions of $171 billion net inflows and performance-related gains of 7.3 percent (representing $191 billion).
Commitment from institutional investors also continues to strengthen, and nearly half of institutional investors increased their hedge fund allocations in 2013, with 57 percent planning to grow their allocations in 2014.
Institutional investors now account for two thirds of industry assets, compared to approximately one third pre-crisis
Investors are happy with hedge fund performance, and 80 percent of respondents state that hedge funds performed as expected or better in 2013, after their allocations returned a weighted average of 9.3 percent in 2013.
Equity long short and event driven are the most sought after strategies.
Investors today pay an average management fee of 1.7 percent, and an average performance fee of 18.2 percent. While fees have come down slightly, investors remain willing to pay for performance: almost half of all investors would allocate to a manager with fees in excess of 2&20 where the manager has proven ‘consistent strong performance in absolute terms’.
NO FEE, NO RISK
100% ON RETURNS If you invest in only one securities finance news source this year, make sure it is your free subscription to Securities Finance Times
100% ON RETURNS If you invest in only one securities finance news source this year, make sure it is your free subscription to Securities Finance Times
