The outlook for the global hedge fund industry remains positive, even as recent returns have disappointed, according to research published on Tuesday by Credit Suisse.
The results of the Swiss bank’s latest annual hedge fund investor survey indicate that institutional investors investors are expecting a 3.5% increase in fund inflows in 2017. The firm reports that 87% of investors plan to maintain, or increase, their hedge fund exposures in the coming year.
However, returns from hedge funds have been disappointing, with only 30% of investors saying that their hedge fund portfolios had met or exceeded their return expectations, down from 45% last year. For 2017, investors are targeting annual returns of 7.2% for their hedge fund portfolios, Credit Suisse notes.
The most popular strategies in the year ahead, according to survey, are expected to be global macro-discretionary, followed by fixed income arbitrage/relative value, and emerging markets equity.
Additionally, the survey found that investors report that they are making progress in getting more favourable terms from fund managers. Credit Suisse says that over half (57%) of investors say that their management fees were lowered in the past year, and 61% say that at least one manager in their portfolio has a hurdle rate.
“Institutional investors remain strongly committed to hedge funds playing a role in their portfolios,” says Robert Leonard, managing director and global head of capital services at Credit Suisse, in a statement.
“However, they also appear to be following through and making real changes to their hedge fund allocations. This includes increased concentration with funds in their portfolios, adding strategies that are less correlated with equities and terms/structures that better align their long-term interests with those of their managers,” he adds.
The results are based on a survey of over 320 institutional investors representing US$1.3 trillion of hedge fund investments.