Credit Suisse Publishes Results From Tenth Annual Hedge Fund Investor Survey
Credit Suisse released its Tenth Annual Global Hedge Fund Investor Survey today, entitled Great Expectations, in which responses from 345 institutional investors representing $1.1 trillion of hedge fund investments, were analyzed on a number of topics including:
- Key industry trends and forecasts
- Growth and return prospects for the industry
- Strategy preference and allocations plans
Key highlights from the 2018 Credit Suisse Annual Global Hedge Fund Investor Survey:
- 74% of Institutional Investors indicated that their hedge fund portfolios met or exceeded their return expectations during 2017. This is a significant increase from the previous year, when only 30% of investors were satisfied with the performance from their hedge funds allocations.
- Strong Appetite for Equity Focused Strategies in 2018 (8 out of the top 10 strategies), with investors indicating strong interest for a variety of equity focused approaches. This includes Emerging Markets Equity (33%), Fundamental Equity Long/Short (20%), Quantitative Market Neutral (19%) and Equity Long/Short Sector funds (Healthcare, Financials & TMT).
- More Diverse Array of Fee Structures are being offered to investors than ever before, with 76% of investors taking advantage of options such as early stage discounts from new launches, reduced fees for longer lock-ups, sliding fee schedules based on fund AuM, large ticket discounts and hurdle rates or other types of customized terms.
Robert Leonard, Managing Director and Global Head of Capital Services at Credit Suisse, said:
"Last year hedge funds had strong performance and also continued to improve the alignment of interests between themselves and their investors. Accordingly, as we begin 2018, the vast majority of institutional investors appear pleased with the contributions from their hedge fund portfolios. In fact, the number of investors who indicated that their hedge fund allocations met or exceeded their expectations more than doubled from last year, which is a very positive development for the industry."
Other findings from the Survey included:
- Target Returns: For the third straight year, investors increased the target return expectations for their hedge fund portfolios. Investors now expect to realize returns of 8.53% during 2018 from their hedge fund allocations, up from 7.25% expected returns in 2017.
- Regional Focus: Investor interest in APAC (50%), Emerging Markets (39%) and EMEA (32%) topped the regional focus list, as allocators continue to search for value. Conversely, net demand for North American markets was relatively flat, as investors appear to be comfortable with their current allocations to the region.
- Factors for Selecting Hedge Funds: Risk Management capabilities (63%) topped the list as the single most important factor that investors utilize when evaluating hedge funds for potential allocations. In addition, they also indicated that Team Pedigree (60%) and Outperformance of Passive Benchmarks (48%) are other key factors in their decision making process.
- Overall Investor Sentiment: Was positive for the hedge fund industry, with respondents forecasting 5.4% growth in assets under management during 2018. This, as the industry begins the year at an all-time high for assets under management of $3.21T.
- New Launches: Investors remain constructive on the new launch environment, with 63% of all respondents indicating that they had allocated to a newly launched fund last year. Fund of funds (80%) and family offices (65%) were the most likely to have invested in a start-up hedge fund, while pension funds (27%) were the least likely investor segment to do so.
- Alternate Structures: Investors indicated appetite for utilizing a wide range of structures in addition to commingled accounts, including managed account formats, opportunities for co-investment, risk premia strategies, long-only funds and UCITS. One of the strongest areas for growth has been co-investment opportunities, with 30% of investors participating in such investments last year, versus only 9% in 2009.
- Significant Developments in 2018: When asked about potentially significant developments that might occur this year, investors forecast the ongoing realignment of fees/terms, increased volatility, hedge fund outperformance, the continued rise of Artificial Intelligence driven & Cryptocurrency focused strategies, as well as industry consolidation (by number of funds).
The survey, produced by Credit Suisse's Hedge Fund Capital Services Group, is one of the most comprehensive and longest running in the industry—focused on pension funds, endowments, foundations, consultants, private banks, family offices and funds of hedge funds—and with respondents diversified across all global regions.
For a copy of the complete survey, please click here.