Deutsche Bank today released its 13th annual Alternative Investment Survey, one of the industry’s largest and longest standing hedge fund investor surveys. This year, 435 hedge fund investors, representing over USD 1.8 trillion in hedge fund assets under management (AUM), shared insights into their sentiment and allocation plans for 2015.
“As institutional investors’ needs continue to evolve, they are increasingly looking to work with larger hedge fund managers and intermediaries who can meet their appetite for comprehensive portfolio solutions,” said Barry Bausano, Co-head of Global Prime Finance at Deutsche Bank. “More and more, we’re seeing today’s hedge fund assets concentrated among the largest managers.”
“Hedge fund managers who continue to focus on alignment of interests with the allocator community will have an increasingly competitive advantage as our industry grows and evolves,” said Murray Roos, Co-head of Global Prime Finance at Deutsche Bank. “Reward for alpha generation and co-investment opportunities will be key factors in building strong partnerships between limited partnerships and general partnerships.”
Highlights of Deutsche Bank’s 13th annual Alternative Investment Survey:
Hedge fund industry assets set to surpass USD 3 trillion – Hedge funds are expected to surpass USD 3 trillion by year end 2015, growing a further 7%. Institutional investment in hedge funds is set to increase, with 39% of these investors planning to increase their allocation to hedge funds in 2015.
Asset growth continues to be concentrated among the largest managers – Since 2008, assets managed by firms with more than USD 5 billion AUM have grown 141%, compared to 53% for firms with less than USD 5 billion. Today, it is estimated that less than 200 hedge fund firms account for more than two thirds of industry assets.
Accessing skilled managers is ever more critical – Manager selection is becoming increasingly important, as the gap between outperforming and underperforming hedge funds widens. While the average hedge fund returned 3.33% in 2014, the top 5th percentile generated returns greater than 22%.
Investors are looking for steady and predictable risk-adjusted returns – Investors risk/return expectations for traditional hedge fund products continues to come down in favor of steady and predictable performance: only 14% of respondents still target returns of more than 10% for the hedge fund portfolio, compared to 37% last year.
With this in mind, however, 40% of respondents now co-invest with hedge fund managers as a way to increase exposure to a manager’s best ideas and enhance returns. 72% of these investors plan to increase their allocation in 2015.
Quantitative strategies are gaining in popularity – Following a strong year of performance, at least one in every three respondents are planning to increase their allocation to quantitative strategies in 2015. Three of the most sought after quantitative strategies include commodity trading advisor (CTA), quant equity market neutral and quant equity.
Investors see increasing opportunity in Asia – 30% of hedge fund respondents by AUM plan to increase investment in Asian managers over the next 12 months, up from 19% last year. Even more noteworthy is the growing percentage of investors who see opportunity in China, up to 25% from 11% by AUM, year-on-year. India is expected to be a key beneficiary of flows, with 26% of investors by AUM planning to increase exposure to the region, whereas only 4% said the same last year.
Largest intermediaries play an increasingly important role – The current intermediary landscape is dominated by large, well-resourced players that are seeing strong demand from institutional investors. For example, 13% of fund of funds respondents manage 55% of total fund of funds assets in the survey, while 28% of investment consultants account for 89% of total hedge fund assets managed and/or advised on by this investor segment.
Conducted by Deutsche Bank’s Global Prime Finance business, the survey identifies trends amongst a growing and evolving hedge fund investor base. Respondents include asset managers, public and private pensions, endowments and foundations, insurance companies, fund of funds, private banks, investment consultants and family offices.
Allocators from 26 different countries completed the survey. Approximately half of responding investors manage more than USD 1 billion in AUM, and 20% manage over USD 5 billion.
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