Preqin is a leading alternative asset data provider that sits between managers and investors, tracking appetite for the industry based on fund raising activity and fund performance. Since it was established 15 years ago, Preqin has been the go-to source for investors as they assess manager performance and track record as part of their selection process.
Amy Bensted (pictured), Head of Hedge Fund Products at Preqin gave an insightful presentation to open this year's Hedgeweek Awards Event at the Reform Club in London. Making reference to Preqin's latest global hedge fund report published in January, Bensted said that year-on-year, institutional investors have continued to allocate to alternative assets, and 2015 was no different.
"This time last year we were fielding a lot of questions about the effect of CalPERS leaving the asset class; would it be the trigger for a widespread exit of institutional investors from hedge funds? What we saw, in actual fact, was the complete opposite. We saw new institutions investing into the asset class for the first time, as well as existing institutions increasing their allocations.
"Today, we estimate that there are USD3.2tn in assets within the hedge fund industry. We saw over USD70bn of net new inflows over the course of 2015," said Bensted.
Although it was a successful year in terms of fund raising, performance remained a challenge for a lot of hedge funds. The Preqin All-Strategies Hedge Fund benchmark returned just 2.02 per cent in 2015, and as Preqin's survey results show, 33 per cent of investors felt that hedge funds had fallen short of expectations. Fund managers shared this sentiment, with 40 per cent saying that they too felt performance had lagged.
In Bensted's view, fundraising will become more challenging in 2016 at the same time as investors pay even closer scrutiny to performance.
"We have asked investors about their plans for investing in hedge funds for nearly a decade, and for the first time we've seen more investors confirming that they plan to reduce their hedge fund investments than those saying they plan to increase their investments," confirmed Bensted. Whereas 58 per cent said they planned to maintain their allocations in 2015, only 44 per cent responded in kind for 2016.
"But it's not all bad news. Roughly 25 per cent of the investors we track plan to make new investments over the course of the year and in particular we see the strongest appetite from the largest hedge fund investors. We also think there could be good news for emerging managers as large funds close to new investment," added Bensted.
Bensted said that performance will become even more critical in 2016 as investors re-evaluate what good performance means. "We are seeing investors evaluating hedge funds in terms of risk-adjusted returns as well as their ability to preserve capital at times when traditional markets are not doing well. What we could see is a change in how hedge funds are perceived in the industry over the next 12 months," said Bensted, adding that systematic CTAs, macro strategies and equity strategies will likely be the preferred strategies this year.
