Commitment from institutional investors continues to strengthen, with nearly half increasing their hedge fund allocations in 2013 and 57% planning to grow their allocations in 2014. Institutional investors now account for two thirds of industry assets, compared to approximately one third pre-crisis.
The survey suggests that investors are happy with hedge fund performance - 80% of respondents stated that hedge funds performed as expected or better in 2013, after their allocations returned a weighted average of 9.3% and 63% of respondents (79% of institutional investors) are targeting returns of less than 10% in 2014. Equity long short and event driven are the most sought after strategies.
Investors are paying an average management fee of 1.7% and an average performance fee of 18.2%. The survey also found that 39% of investors are embracing a risk-based approach to asset allocation (up from 25% in 2013) and 41% of pension consultants recommend this approach to clients.
This year over 400 investor entities participated in the survey, representing more than $1.8trn in hedge fund assets and over two thirds of the entire market by AuM.
Anita Nemes, global head of the Hedge Fund Capital Group at Deutsche Bank, said, “With the majority of investors happy with hedge fund performance, we expect institutional investors to further strengthen their commitment to hedge funds. Last year’s respondents targeted 9.2% for their hedge fund portfolios and hedge funds delivered. Looking forward, respondents are targeting 9.4% for 2014.”