In addition to more
volatile markets, hedge fund managers are facing the additional challenge of
more active investor behaviour according to Credit Suisse’s mid-year Hedge Fund Investor Sentiment Survey.
The survey, which
polled over 200 global institutional investors representing almost $700 billion
in hedge fund investments, found that 84% of investors redeemed from hedge
funds during the first half of 2016.
Much of the money will
be recycled, however, with 82% saying they will reallocate to additional or
existing hedge funds in their portfolio, while just 9% of respondents said they
would not reallocate and 9% said they are undecided. The main drivers for
potential future allocations were identified to be opportunistic, based on
strategy or manager performance (60%) and continued outperformance of current
hedge fund allocations (12%).
surveyed on their hedge fund activities during the first half of the year as
well as strategy appetite and allocation plans for the second half of the year
– 73% indicated they will allocate capital to hedge funds in the second half.
Credit Suisse says
that despite the majority of institutional investors redeeming from hedge funds
during the first half of this year, most continue to view hedge funds as
playing “a key role” in their investment portfolios.
It adds that redemptions
appear to have been highly targeted as 63% of investors indicated that the
primary driver of first half redemptions was specific fund underperformance or
style drift. Only 11% of investors attributed redemptions to changes in
their asset allocation model, while 9% said they were a result of
disappointment with the performance of their hedge fund portfolios in general.
The top three most
frequently mentioned strategies being considered for second half allocations
were Equity Long/Short, Equity Market Neutral and Global Macro, which were also
three of the top strategies in the Credit Suisse Annual Investor Survey
conducted earlier this year.
“Despite some outflows
from the hedge fund industry this year, most institutional investors appear to
be staying the course and intend to recycle the vast majority of capital back
into other hedge funds,” says Robert Leonard, managing director and global head
of capital services at Credit Suisse. “Investors also indicated that their
redemptions have been highly targeted and selective mostly driven by specific
fund performance rather than an overall change in attitude towards hedge funds
“It is notable that
while some investors expect to make additional redemptions in the second half
of this year, almost three quarters indicated that they will also likely be
making new allocations to hedge funds during that time as well,” he adds. “This
confirms institutional investors continue to see a role for hedge funds in
Pension funds proved
to be the “stickiest” investors during the first half of this year with 31%
reporting no redemptions to their hedge fund portfolios. That was followed by endowments/foundations
at 25%, family offices at 13% and fund of funds at 8%.
With respect to
preferred structures (other than traditional Master/Feeder), investors
indicated additional interest in Liquid Alternatives, Risk Premia vehicles and
Looking ahead, 76% of
US investors said they would likely make second half allocations to hedge
funds. 86% of APAC investors and 64% of EMEA investors indicated they were also
likely to do so.