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Hedge Funds Buoyed in First Half by Private Wealth Allocations

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Hedge fund managers may be feeling competitive pressure for investor assets, but their fundraising is thriving.

Alternative investments data provider Preqin reported Thursday that 73% of some 100 hedge fund managers it surveyed in June said competition in fundraising had become more intense over the past 12 months.

Yet, 64% of respondents — single-fund and fund-of-funds managers — said their assets had increased during the first half.

As well, 61% of firms that managed alternative UCITS and 50% of those that offered alternative mutual fund products reported net inflows.

“Although the first half of the year has been rocky, with performance proving underwhelming and investor satisfaction with the industry starting to wane, it has nevertheless been a successful one for many managers,” Amy Bensted, Preqin’s head of hedge fund products, said in a statement.

“Interest from a wider group of investors, particularly those in the private wealth arena and retail clients, is leading to a proliferation of new structures, in particular liquid alternatives, to cater to new markets.”

Bensted said this was providing more product options to all hedge fund investors, and had driven the growth in assets in the hedge fund sector.

Hedge fund assets under management totaled $2.9 trillion as the end of July, up from $2.7 trillion at the end of 2013, she said.

“Looking forward to the end of 2014, 77% of the hedge fund managers that participated in our June study stated that they believe industry assets under management will grow further in the second half of the year.”

High-Net-Worth and Retail Inflows

The survey found that inflows had exceeded outflows across all hedge fund products. Only 12% of managers in the survey reported that their assets under management had decreased in the first half.

Ten percent of alternative mutual fund managers reported the same thing, while no managers reported outflows from their UCITS products.

Thirty-seven percent of fund managers believed that the proliferation of liquid alternative funds would increase inflows to all products, as these attract more investors to hedge fund strategies.

The survey also showed that private sources of capital outweighed institutional inflows in the first six months of the year.

Fifty-nine percent of fund managers with allocations from high-net-worth individuals reported they had seen inflows from these investors in the first half. Institutional capital as a result now represents 63% of all hedge fund assets, down from 65% at the end of 2013.

New inflows from retail clients have also continued, according to the survey. Forty-three percent of fund managers in the survey had some capital from retail clients, and 47% of these reported increased inflows from this source in the first half.

Thirty-six percent of respondents said they expected a significant increase in the amount of capital from retail clients in the next three years, while 46% believed there would be an increase, albeit a small one.

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