Hedge Fund Investors Not Chasing High Returns

Preqin survey finds investors want uncorrelated, risk-adjusted returns

Most institutional investors are satisfied with their hedge fund performance, Preqin found. Most institutional investors are satisfied with their hedge fund performance, Preqin found.

Institutional investors want hedge funds to do more than produce high returns.

Fifty-nine percent of investors in a new study looked to their hedge fund portfolios to produce returns uncorrelated to equity markets, 53% wanted hedge funds to produce robust risk-adjusted returns and 46% looked to them to dampen portfolio volatility.

Research from Preqin, an alternatives data provider, involving more than 100 institutions found that 67% of hedge fund investors were satisfied with returns between 4% and 6%, and that only 6% sought returns over 10%.

In 2013, hedge funds produced a net return of 11.5%, and in the last 12 months they have achieved 7.9%.

Following are other Preqin research findings:

  • 84% of investors surveyed said their hedge fund return expectations had been met or exceeded in the past 12 months
  • 80% believed that portfolio risk would increase if they ceased investing in hedge funds
  • 95% felt hedge funds had met their key objectives over a 12-month, three-year and five-year period
  • 87% of investors said they were maintaining or increasing their hedge fund allocations in the next 12 months

“Investors are the most satisfied with returns they have ever been, with hedge funds having largely lived up to investors’ expectations on an absolute and risk-adjusted basis over the short, medium and longer term,” Amy Bensted, Preqin’s head of hedge funds products, said in a statement.

“The amount of money they invest in hedge funds has increased over recent years and is likely to grow significantly in the years to come. Hedge fund managers looking to raise capital from these investors need to market the positive impact that their vehicle can have on an investor’s portfolio outside of returns in order to attract an increasingly sophisticated investor base.”

Different Benchmarks?

Thirty-six percent of survey participants said different benchmarks should be used for separate strategies in hedge fund portfolios.

According to Preqin, their attitude may be influenced by the fact that 51% of investors said hedge funds were a diverse group of strategies and aggregating performance across styles was irrelevant to benchmarking.

Sixty-three percent of investors said they used an external hedge-fund-specific benchmark to assess their hedge fund portfolio’s performance.

Although the S&P 500 is the most favored non-hedge-fund-specific benchmark among investors, with 19% of investors surveyed using it to assess hedge fund performance, 24% of respondents said the S&P 500 and other public indexes were no longer relevant to hedge fund performance.

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Institutional investors want hedge funds to do more than produce high returns.

Fifty-nine percent of investors in a new study looked to their hedge fund portfolios to produce returns uncorrelated to equity markets, 53% wanted hedge funds to produce robust risk-adjusted returns and 46% looked to them to dampen portfolio volatility.

Research from Preqin, an alternatives data provider, involving more than 100 institutions found that 67% of hedge fund investors were satisfied with returns between 4% and 6%, and that only 6% sought returns over 10%.

In 2013, hedge funds produced a net return of 11.5%, and in the last 12 months they have achieved 7.9%.

Following are other Preqin research findings:

·         84% of investors surveyed said their hedge fund return expectations had been met or exceeded in the past 12 months

·         80% believed that portfolio risk would increase if they ceased investing in hedge funds

·         95% felt hedge funds had met their key objectives over a 12-month, three-year and five-year period

·         87% of investors said they were maintaining or increasing their hedge fund allocations in the next 12 months

“Investors are the most satisfied with returns they have ever been, with hedge funds having largely lived up to investors’ expectations on an absolute and risk-adjusted basis over the short, medium and longer term,” Amy Bensted, Preqin’s head of hedge funds products, said in a statement.

“The amount of money they invest in hedge funds has increased over recent years and is likely to grow significantly in the years to come. Hedge fund managers looking to raise capital from these investors need to market the positive impact that their vehicle can have on an investor’s portfolio outside of returns in order to attract an increasingly sophisticated investor base.”

Different Benchmarks?

Thirty-six percent of survey participants said different benchmarks should be used for separate strategies in hedge fund portfolios.

According to Preqin, their attitude may be influenced by the fact that 51% of investors said hedge funds were a diverse group of strategies and aggregating performance across styles was irrelevant to benchmarking.

Sixty-three percent of investors said they used an external hedge-fund-specific benchmark to assess their hedge fund portfolio’s performance.

Although the S&P 500 is the most favored non-hedge-fund-specific benchmark among investors, with 19% of investors surveyed using it to assess hedge fund performance, 24% of respondents said the S&P 500 and other public indices were no longer relevant to hedge fund performance.

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