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Preqin: Performance, Demand For More Favourable Fees Main Challenges For Hedge Funds In 2018

Performance and demand for more favourable fees are the top challenges for hedge fund managers in the hedge fund industry this year according to a report from Preqin.

Only a third of fund managers surveyed in the Preqin Fund Manager Outlook: Hedge Funds H1 2018 reported that they would reduce management fees to attract investors. The report found that 57% of institutions spoken to in December 2017 wanted managers to reduce both management and performance fees.

Despite this stand off between investor demand and fund manager flexibility on fees, 2017 was a better year all round for hedge funds.

Nearly three quarters of respondents said that their return goals had been met or exceeded over 2017.  According to the Preqin All-Strategies Hedge Fund benchmark last year returned 11.41%, which was up 48% on 2016 when it returned 7.67%. It was the best year since 2013.

The report surveyed 360 fund managers across the globe with a total AUM of $210bn. It reported that last year was much better for hedge funds with fund raising being less challenging compared with a year ago and more managers finding it easier to retain capital. Only 16% of funds failed to generate returns above zero last year, compared to 34% in 2016.

Drivers of the strong performance included the election of President Trump. The report stated: “Persident Trump, following his election success in November 2016, had one of the largest positive impacts on hedge fund performance throughout 2017.”

The largest negative impacts were low volatility and low interest rates.