Deutsche Bank Alternative Investment Survey identifies investor expectations for 2013
Deutsche Bank today announced the results of its eleventh annual Alternative Investor Survey, the largest and longest standing hedge fund investor survey with over 300 investor entities worldwide managing more than $1.2 trillion in hedge fund assets participating. This represents more than half the entire market by assets under management (AuM).
Barry Bausano, Global Co-head of Prime Finance at Deutsche Bank said: “The hedge fund industry is experiencing an ongoing evolution as investor expectations and manager returns more closely align. Our 2012 survey closely predicted hedge fund asset growth for the year. In 2013 investors predict increased growth of 11%, with assets reaching $2.5 trillion by year end.”
Anita Nemes, Global Head of Capital Introduction at Deutsche Bank said: “Investors are increasingly looking for steady and consistent returns as they balance portfolios according to a risk based rather than asset class approach. Top performing managers continue to dominate, but besides performance, aligning interests with those of the investor is also critical in order to win attention from an increasingly institutional investor base.”
Highlights of Deutsche Bank’s eleventh annual Alternative Investment Survey
- Investors expect continued growth, predicting industry AuM will reach an all time high of $2.5 trillion by year end, forecasting net inflows of $123 billion in 2013.
- Hedge funds are no longer a stand-alone asset class. Institutional investors have moved from a traditional asset class allocation to a risk-based approach. A quarter of institutional investors have adopted this approach and half of consultants recommend it to clients.
- Investors now expect steady, predictable return streams. Two thirds of investors feel that hedge funds have performed as expected or better in 2012. For 2013, 65% of investors and 79% of institutional investors are targeting returns of 5-10% from hedge funds.
- Successful fee negotiation involves compromise, whilst investors commit to top performing managers. Almost 80% of investors pay an average management fee of 1.5-2% and three quarters pay 17.5-20% for performance. Only 29% of investors who negotiate fees are successful more than half of the time.
- Institutional investors dominate hedge fund AuM. Whilst 57% of private banks decreased hedge fund AuM, almost 70% of pension funds increased their allocations. Almost half of pension funds expect to increase allocations by $100 million or more in 2013.
- The demise of fund of funds has been exaggerated, with evolved business models attracting institutional capital. 29% state that over half of new business in 2012 was for bespoke portfolios, whilst 58% of end-allocators state the main benefit of fund of fund allocations is to access niche managers, including smaller or younger funds.
The survey, conducted by Deutsche Bank’s Markets Prime Finance business, identifies the evolution of hedge fund investing brought on by new investor expectations. Respondents include public and private pensions, foundations and endowments, funds of funds, private banks, investment consultants and family offices.
Over half of the investors surveyed individually manage and/or advise over $1 billion in hedge fund assets, with 10 percent managing $10 billion or more.
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