Survey: Institutional Investors Expect Hedge Fund Growth in 2016
Institutional hedge fund investors surveyed by Credit Suisse predict a 3.5 percent increase in hedge fund assets under management this year. That would push industry assets back over $3 trillion, a rebound from January, when assets declined to $2.96 trillion. January marked the first time industry assets dipped below $3 trillion since May, 2014.
“Institutional investors remain committed to their hedge fund allocations and are optimistic for further growth in the industry during the upcoming year,” said Robert Leonard, Managing Director and Global Head of Capital Services at Credit Suisse. Eighty-seven percent of the 369 institutional investors surveyed in Credit Suisse’s eighth annual Hedge Fund Investor Survey indicated that they plan to maintain or increase their hedge fund allocations in the coming year.
“Increased interest in strategies such as equity market neutral, global macro and equity long/short trading-oriented appears to indicate that investors are anticipating another challenging environment for 2016,” Leonard said. The Equity Market Neutral-Fundamental strategy ranks as the top choice among investors, moving up from fifth place in last year’s survey. Equity Market Neutral-Quantitative is the second most preferred strategy, also a marked improvement from last year, when it ranked seventh.
After the Equity Market Neutral strategies, the most preferred strategies are Global Macro-Discretionary. Equity Long/Short-Trading, and Equity Long/Short–Fundamental & General. Equity Long/Short-Trading saw a significant increase in demand over last year, when it ranked 15th.
Only 2 percent of investors highlighted a lower target weight of hedge funds in their portfolio as the key driver of their redemptions last year. Almost half of respondents listed individual manager underperformance as the key reason for redemptions in 2015, with another 25 percent indicating a top down shift in strategy preference as their main factor.
When asked about potentially significant developments that could occur in the hedge fund industry in 2016, investors predicted a high demand for managers with short-selling skills, potential for asset/liability mismatches, fee compression, additional fund closures and increased competition from alternative structures such as UCITS, Liquid Alternatives and Co-Investment funds.
The survey, entitled “Staying the Course,” was produced by Credit Suisse’s Hedge Fund Capital Services Group. It is one of the most comprehensive in the industry —focused on pension funds, endowments, foundations, consultants, family offices and funds of hedge funds—and with respondents diversified across all regions.