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Hedge fund performance is primary industry concern for managers and investors

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Following Preqin’s mid-year surveys of both hedge fund investors and fund managers, both parties agree that the greatest challenge the industry currently faces is performance. 

Forty-four per cent of investors named performance as a key issue facing the industry, as well as 22 per cent of fund managers, higher than any other factor. This has arisen following one of the worst years for hedge fund performance in 2014 since the financial crisis, and as such, 43 per cent of investors think hedge funds have underperformed in the last year. Investors named fees and transparency as the next most important issues, while fund managers are concerned with the fundraising environment and current condition of the financial markets. 

The hedge fund industry grew by USD76 billion in H1 2015, and 81 per cent of fund managers think that it will grow further over the rest of the year. 33 per cent of investors in hedge funds are expecting to invest less in the asset class over the next 12 months, however, and only 19 per cent are intending to invest more.

Some 61 per cent of hedge fund managers globally think that competition has increased over the past year, but this varies according to region. Two-thirds of North American managers, 52 per cent of European managers and 44 per cent of Asia-Pacific managers feel increased competition for investor capital, yet 71 per cent of managers based outside these three regions feel competition has increased.

When surveyed in June 2014, 69 per cent of investors thought that their interests were aligned with those of fund managers. This had fallen to 51 per cent in June 2015, highlighting the need for managers to ensure they listen to the needs of their investors. 

A total of 55 per cent of fund managers believe that they differentiate themselves by having a niche strategy for their fund. Nineteen per cent of investors, however, have rejected a fund at the initial screening because the fund strategy was not differentiated from others. An even greater proportion of investors noted that the fund strategy was not of interest (36 per cent) and the track record was too short (26 per cent). 

“Preqin’s mid-year surveys of hedge fund investors and managers show that performance is at the forefront of the minds of both groups,” says Amy Bensted (pictured), Head of Hedge Fund Products at Preqin. “Investor dissatisfaction with the returns of hedge funds, coupled with a large proportion of investors feeling that their interests are not aligned with those of their fund managers, has left a large proportion of investors questioning the value of hedge funds as part of their wider portfolios. 

“In light of many investors playing closer attention to their hedge fund investments, and some putting portfolios on ice, fund managers have reported fundraising becoming more challenging. Navigating the volatile markets and generating strong returns will be key over the rest of the year, in order to prove the value of hedge funds to investors as a means of reducing portfolio volatility and generating long-term risk-adjusted returns.” 

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