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Deutsche Bank’s 12th Annual Survey Of Alternative Investors

Deutsche Bank has released the results of its 12th annual survey of investors in alternative class assets.

The highlights include…

• Investors  remain bullish on industry growth – hedge  funds are expected  to reach a record $3 trillion by year-end 2014, up from $2.6tn as of 2013 year-end. This is based on investorsʼ predictions of $171 billion net inflows and performance-related  gains of 7.3% (representing $191 billion).

• Commitment   from  institutional   investors continues to strengthen – nearly half of institutional  investors  increased  their  hedge fund allocations in 2013 and 57% plan to grow their allocations in 2014. Institutional investors now account for two thirds of industry assets, compared to approximately one third pre-crisis.

• Investors  are  happy  with  hedge  fund performance  - 80% of respondentʼs  state that hedge funds performed as expected or better in 2013, after their allocations returned a weighted average of 9.3% in 2013. 63% of respondents,  and  79%  of  institutional investors, are  targeting  returns  of  less  than 10%  for their  hedge  fund  portfolios  in 2014. Equity  long  short  and  event  driven  are  the most sought after strategies.

•  2 & 20 is not the norm – Investors  today pay an average management fee of 1.7%, and an average   performance   fee  of  18.2%.  While fees   have   come   down   slightly,   investors remain willing to pay for performance.

•  A bigger  part of a bigger  pie – hedge  funds get reclassified. 39% of investors are now embracing a risk-based approach to asset allocation,   up  from  25%  in  2013.  41%  of pension   consultants   recommend   this approach to clients. The risk-based approach effectively  removes  historical  constraints  on the percentage allocation to absolute return strategies,  allowing  equity  long/short managers to compete with long only equity funds. While   fixed   income   absolute   return funds   are   placed   within   the   overall   fixed income risk budget.

Over  400  investor  entities  participated, representing over $1.8 trillion in hedge fund assets and over two thirds of the entire market by assets under   management  (AuM). Approximately   half (46%) of responding investors manage $1bn+ in hedge fund AuM, and 18% manage over $5bn.

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