Investors in alternative assets are predicting double digit asset growth for the year ahead, according to a new survey by Deutsche Bank.
The firm announced the results of its 11th annual alternative investor survey, which shows that investors expect continued growth, predicting industry assets under management (AUM) will reach an all time high of US$2.5 trillion by year end, up 11%, with net inflows of US$123 billion.
“The hedge fund industry is experiencing an ongoing evolution as investor expectations and manager returns more closely align. Our 2012 survey closely predicted hedge fund asset growth for the year. In 2013 investors predict increased growth of 11%, with assets reaching US$2.5 trillion by year end,” says Barry Bausano, global co-head of prime finance at Deutsche Bank.
The survey also found that hedge funds are no longer seen as a stand-alone asset class. Instead, institutional investors have moved from a traditional asset class allocation approach to a risk-based approach, it reports.
Also investors now expect steady, predictable return streams, it says. It reports that, for 2013, 65% of investors and 79% of institutional investors are targeting returns of 5%-10% from hedge funds.
“Investors are increasingly looking for steady and consistent returns as they balance portfolios according to a risk based rather than asset class approach. Top performing managers continue to dominate, but besides performance, aligning interests with those of the investor is also critical in order to win attention from an increasingly institutional investor base,” says Anita Nemes, global head of capital introduction at Deutsche Bank.
Additionally, the survey fund that almost 80% of investors pay an average management fee of 1.5%-2% and three quarters pay 17.5%-20% for performance. Only 29% of investors who negotiate fees are successful more than half of the time, it notes.
Institutional investors dominate hedge fund AUM, it reports. It says that while 57% of private banks decreased hedge fund AUM, almost 70% of pension funds increased their allocations. Almost half of pension funds expect to increase allocations by US$100 million or more in 2013, it says.
The survey also says that the demise of fund of funds has been exaggerated, with evolved business models attracting institutional capital. It reports that 29% state that over half of new business in 2012 was for bespoke portfolios, and that 58% of allocators state the main benefit of fund of fund allocations is to access niche managers, including smaller or younger funds.
The survey is based on responses from over 300 investor entities worldwide managing more than US$1.2 trillion in hedge fund assets participating.