BNP Paribas’s capital Iintroduction team has seen increased demand for hurdle rates, which dictate the point at which performance fees come into play, when speaking with hedge fund investors as part of the performance versus risk free rate discussion, according to the company’s 2024 Alternative Investment Survey.
Some 28% of respondents scored hurdle rates as high priority when making new allocations, and already have 31% of their portfolio, by assets, invested with a hurdle rate. The average respondent, meanwhile, has 19% of their portfolio invested with a hurdle.
Nonetheless, investors remain focused on better aligned fee structures with almost three quarters of responding investors saying they would overlook their preferred fee structure in favour of managers with outstanding performance. Only 9% said they would under no circumstances allocate without a favourable fee structure in place.
The survey, which canvassed the views of 238 allocators in December 2023 and January 2024, who invest or advise on $1.2tn in hedge fund assets – about one-third of total industry assets under management – also found that despite average returns last year of 7.6% trailing way behind the MSCI World’s 24% gain, a large number of investors are keeping faith with the sector. Almost half of respondents said they are looking to contribute to hedge funds in the coming year, expecting to add $17bn on a net basis in 2024 up 70% from the $10bn net they added in 2023.
Continuing the trend from last year, credit strategies remain the most likely destination for those inflows with 33% of respondents looking to add on a net basis.
As predicated by the 023 survey, credit was the number one strategy allocators added to last year, however, the Capital Introduction team did not observe allocators investing as many dollars as they planned to. Only 21% of respondents surveyed added to credit in 2023, whereas in last year’s survey 48% said they intended to do so.
