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Asia Pacific investors consider value of hedge funds

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Despite plans to reduce exposure to hedge funds in the short term, investors in Asia Pacific remain more upbeat about the asset class than their counterparts in other regions.

Hedge fund investors in Asia Pacific are mixed on their future allocations to the asset class, but remain more positive about the industry compared to investors in other regions.
In November 2016, a survey conducted by Preqin found that although investor dissatisfaction with 2016 performance was prevalent, less than half of Asia Pacific-based investors said their portfolios had not met expectations, compared with two-thirds of all other investors.
Asia Pacific-based investors also have mixed intentions for their hedge fund portfolios over the short and long term. The majority intend to invest less capital in 2017 than in 2016, but over the longer term less than a third intend to reduce their exposure, while an equal proportion will look to increase it. This is twice the proportion of investors in other regions that will look to invest more in hedge funds in the long term.
Asia Pacific-based hedge fund managers posted gains of 2.81 per cent through 2016, their lowest annual return since 2011 (-5.95 per cent). This compares with gains of 7.40 per cent for the global industry.
Despite this, 57 per cent of APAC-based investors believe 2016 performance met or exceeded their expectations, almost twice the proportion (33 per cent) of investors in other markets that think the same.
However, investor confidence in hedge funds remains low in Asia Pacific: just 14 per cent of investors plan to invest more capital in hedge funds in 2017, compared to 57 per cent that plan to decrease their short-term exposure to the asset class.
Over the longer term, 29 per cent of Asia Pacific-based investors intend to increase their exposure to hedge funds, while the same proportion intend to reduce it.
A similar proportion of global investors (31 per cent) intend to reduce their long-term investment in the asset class, but only half the proportion (15 per cent) of investors in other regions also plan to invest more in hedge funds.
Equity strategies, macro strategies and relative value strategies funds are all set to see inflows from Asia- Pacific-based investors in 2017, as significant proportions of investors indicate that they intend to invest more to these strategies.
Amy Bensted (pictured), head of hedge fund products, says: “Although the hedge fund industry in Asia Pacific is smaller than in North America and Europe, it has seen significant growth in recent times. Many investors in the region have only begun investing in recent years, and typically invest smaller proportions of their portfolios in hedge funds. However, the region could be a source of significant capital inflows in future years, as the portfolios of these investors grow and mature. 

“However, the short-term outlook is less positive, with investors in the region, in a similar vein to investors globally, planning to reduce their exposure to hedge funds in the next 12 months. Like other regions across the globe, the twin issues of fees and performance will be central to the discussion around hedge funds in 2017, and something that will need to be addressed to improve investor sentiment in Asia Pacific and beyond.” 

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