Investors have no plans to increase their exposure to hedge funds and aren’t interested in buying multiple products from one funds manager, according to Ernst & Young’s seventh annual survey of the global hedge fund market.
A new report by EY titled: Exploring pathways to growth, found a major discrepancy between the expectations of investors and funds managers with 72 per cent of investors planning to maintain their current allocation to hedge funds over the next three years and 11 per cent planning to decrease their exposure.
The report revealed that only 17 per cent of investors plan to increase their exposure to hedge funds while 67 per cent of funds managers expect to achieve significant growth in the next three years. Managers with less than $10 billion under management had budgeted for 15 per cent growth on average.
The report also found managers in developed markets are more focused on developing additional distribution networks while those in Asia are focused on upgrading talent.
EY Oceania Asset Management leader Antoinette Elias said managers globally were optimistic about their growth prospects with plans to invest in new strategies and products, and enter new distribution networks and channels but this optimism was not shared by investors.
“While managers seem determined to diversify their offerings, investors are much less interested in buying multiple products from the same manager,” she said.
“Instead, they seek the best type of manager for particular strategies. This explains why managers attract money from new clients at almost the same rate as they do from existing ones.”
One of the major obstacles facing funds managers, according to the EY report, is that investors believe hedge funds are too expensive and fail to deliver on performance.
One quarter of respondents said the single biggest factor preventing them from allocating more to hedge funds was high fees. Around 19 per cent said lack of performance was their main concern and 17 per cent said risk while the rest were concerned about regulations, liquidity and transparency.
The most popular hedge fund and alternative strategies among investors surveyed were long-only funds (40%); registered alternative funds (38%); private equity funds (28%); Undertakings for Collective Investment in Transferable Securities or UCITs (28%) and structured products (22%).
