A quarter of institutional investors are considering switching hedge funds, citing concerns over risk management, underperformance, and fund size, according to a report by Reuters citing the findings of new survey by prime brokerage IG Prime.
Despite strong overall hedge fund performance in 2024 — with global funds delivering an average return of 11%, per data from PivotalPath — some investors remain dissatisfied. So far in 2025, hedge fund returns have reached 1.3% year-to-date as of the end of February, the research firm reported.
IG Prime’s ‘State of the Hedge Fund Industry’ report, based on a survey of 51 institutional clients, found that while 76% of investors plan to stick with their current hedge funds, 24% are preparing to reallocate capital.
The key drivers for switching include: concerns over risk management practices; underwhelming performance; and hedge fund size considerations.
Investor sentiment on fund size though was split. While 40% of those looking to reallocate said they would opt for smaller hedge funds, 25% preferred larger firms with greater resources and capabilities.
Strategy preference also played a major role with stock-trading hedge funds remaining the most popular among investors. Over one-third meanwhile, favoured multi-strategy hedge funds, which diversify across different trading approaches, while only 8% expressed interest in commodity-focused or volatility-based funds.
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