Investor sentiment backs hedge fund allocation
23 February 2016 Frankfurt
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Hedge funds are jostling for investor allocation, will outperform equity markets and should be strongly considered by pension funds for allocation, according to Deutsche Bank’s 14th Alternative Investment Survey.
The survey questioned 504 global hedge fund investors on their 2016 strategy and found that 41 percent of respondents plan to increase their hedge fund allocations.
As a result, industry assets are expected to grow approximately 5 percent in 2016, surpassing $3 trillion, according to Deutsche Bank.
At the same time, pension funds’ allocations to hedge funds continued their year-on-year growth. Pension funds averaged an 8 percent hedge fund allocation, up from 7 percent in 2015.
Deutsche Bank attributed this shift to the fast growing trend of pension funds employing investment consultants to achieve a more scientific focus on alpha versus beta and greater demands around operational excellence.
Of the pension fund survey respondents, 71 percent use an investment consultant, up from just 15 percent in 2010.
Managers, according to Deutsche Bank, are now competing for a place among an average of 36 funds (median 25) versus 60 (median 45) in 2008.
Due to a scarcity of alpha and capacity concerns, more investors are concentrating their portfolios in search of higher returns, reduced overall costs and greater portfolio efficiency.
Also, the survey found that an increasing emphasis is being placed on creating a partnership dynamic with hedge funds, as opposed to a client-service provider one.
More than two thirds of respondents placed access to founders, chief investment officers and senior investment professionals in their top three factors influencing the manager selection process.
One third of respondents also utilise single investment funds to create more tailored investment solutions.
Demand for non-traditional hedge fund products is also on the rise. Investors are increasingly favouring alternative UCITS strategies, alternative ’40 Act mutual funds and hybrid private equity-hedge fund vehicles, as well as long-only and co-investment opportunities.
Anita Nemes, global head of capital introduction at Deutsche Bank, said: “Investors are becoming increasingly sophisticated in constructing their hedge fund portfolios.”
“The return dispersion seen in 2015 means that choosing the right manager and constructing the right portfolio is ever more critical.”
“Investors are concentrating and redesigning their portfolios in search of less correlated, diversified return streams.”
The survey questioned 504 global hedge fund investors on their 2016 strategy and found that 41 percent of respondents plan to increase their hedge fund allocations.
As a result, industry assets are expected to grow approximately 5 percent in 2016, surpassing $3 trillion, according to Deutsche Bank.
At the same time, pension funds’ allocations to hedge funds continued their year-on-year growth. Pension funds averaged an 8 percent hedge fund allocation, up from 7 percent in 2015.
Deutsche Bank attributed this shift to the fast growing trend of pension funds employing investment consultants to achieve a more scientific focus on alpha versus beta and greater demands around operational excellence.
Of the pension fund survey respondents, 71 percent use an investment consultant, up from just 15 percent in 2010.
Managers, according to Deutsche Bank, are now competing for a place among an average of 36 funds (median 25) versus 60 (median 45) in 2008.
Due to a scarcity of alpha and capacity concerns, more investors are concentrating their portfolios in search of higher returns, reduced overall costs and greater portfolio efficiency.
Also, the survey found that an increasing emphasis is being placed on creating a partnership dynamic with hedge funds, as opposed to a client-service provider one.
More than two thirds of respondents placed access to founders, chief investment officers and senior investment professionals in their top three factors influencing the manager selection process.
One third of respondents also utilise single investment funds to create more tailored investment solutions.
Demand for non-traditional hedge fund products is also on the rise. Investors are increasingly favouring alternative UCITS strategies, alternative ’40 Act mutual funds and hybrid private equity-hedge fund vehicles, as well as long-only and co-investment opportunities.
Anita Nemes, global head of capital introduction at Deutsche Bank, said: “Investors are becoming increasingly sophisticated in constructing their hedge fund portfolios.”
“The return dispersion seen in 2015 means that choosing the right manager and constructing the right portfolio is ever more critical.”
“Investors are concentrating and redesigning their portfolios in search of less correlated, diversified return streams.”
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