New York (HedgeWorld.com)– A Deutsche Bank survey of institutional investors confirmed what many in the industry have long suspected, namely that investment decisions are not much affected by hedge fund fees.
Investors select hedge funds mainly on the basis of the three P’s, namely philosophy, pedigree and performance, the survey indicates. Of the participants, 42% said they look for investment philosophy, 26% look for manager pedigree and 22% for performance.
By contrast, only 1% mentioned fees as an issue in assessing a hedge fund manager. This is the second year in a row that this survey showed fees to be unimportant.
The study is based on 376 alternative asset investors with more than $350 billion in combined hedge fund assets worldwide. Half the participants are funds of funds. Sixteen percent are family offices, 10% are endowments and foundations, 7% are banks and 5% are pensions. Somewhat less than two-thirds of the investment offices are in the United States, one third are in Europe and 5% are in Asia.
The study demonstrates sharp differences among investors but also some commonalities. Most investors (60%) take between two and six months to make a hedge fund allocation. But 37% have allocated in less than one month when they were required to make a quick decision–funds of funds and family offices in particular are likely to do this.
A one-year lock up is no problem for 81% of investors, but only 14% are willing to lock up their money for two years. Hurdle rates are uncommon, but high watermarks are required by 81% of investors.