02/03/17

Credit Suisse Predicts Paltry 3.5% Growth for Hedge Funds in 2017 (CS)

Will the difficult times for traditional hedge funds ever end? In its latest Hedge Fund Investor Survey, Credit Suisse (CS) has predicted that hedge funds industry-wide will see an increase of inflows of a meager 3.5% during the year 2017. Traditional hedge funds have had a rough time of late, as return levels have been low and investor redemptions have increased. In spite of that, the industry has started off 2017 with an all-time high level of assets under management: over $3 trillion. Perhaps that will not be enough of a motivating factor to keep inflows moving, though. Here is a breakdown of Credit Suisse's survey results and what they might mean, reports Investopedia.

Institutional Investors Remain a Concern

The survey, which documented responses from more than 320 investors representing a total of $1.3 trillion in hedge fund investments, revealed that many institutional investors are both committed to hedge fund investments as a strategy and also cautious about their allocations. According to Robert Leonard, Managing Director and Global Head of Capital Services for Credit Suisse, investors "appear to be following through and making real changes to their hedge fund allocations. This includes increased concentration with funds in their portfolios, adding strategies that are less correlated with equities and terms/structures that better align their long-term interests with those of their managers." In general, this seems to be an encouraging sign for hedge funds, as it points to institutional investors and fund managers reaching a middle ground of compromise.

Key to the headway in this regard is a continued push for better alignment of terms between investors and managers. 61% of institutional investor survey respondents reported that they had one or more managers in their portfolio with a hurdle rate. More than half of responders said their management fees at hedge funds had been lowered at some point in the last year.

Global Macro Rises to the Top

The top preferred strategy according to institutional responders was global macro-discretionary, accounting for 26% net demand. The next most popular strategy among investors was fixed income arbitrage/relative value. Emerging markets-equity matched with 18% net demand as well.

There were a number of other findings revealed by the survey. Investors tend to have shifted toward sector-focused strategies. Quantitative and systematic strategies are continuing to climb. On the positive side for hedge fund managers in general, 87% of investors surveyed indicated their plans to maintain or increase their hedge fund exposures for this year. However, this matches the figure from last year exactly, and many funds were still not thrilled with their net inflows for that time period. At the same time, investor appetite for start-up funds remains high, with nearly half of all responders indicating that they had invested in a new fund in the past 12 months.