Global investor interest in high-fee multi-strategy hedge funds is waning, according to a report by Reuters citing a recent survey by Goldman Sachs, although a growing number of investors are still planning to add hedge funds to their portfolios.
The survey of over 300 investors, including family offices, sovereign wealth funds and pension schemes, revealed that only 15% are interested in increasing their exposure to multi-manager strategies with pass-through fees. This marks a decline from over 20% last year.
An earlier report by Barclays revealed that the biggest multi-manager hedge funds, which charge pass-through fees, now retain more than half of their gains, leaving investors with an average return of 42% after expenses and performance fees.
These hedge funds experienced the highest proportion of outflows, totalling 1.5% of assets managed in the first half of the year. Overall, net outflows were about 1.1% of assets managed across all strategies, except systematic investing strategies, which saw net inflows.
“The flows picture has remained challenging thus far in 2024,” Goldman’s report stated.
However, the survey also indicated that the highest proportion of investors since 2020 plan to add more hedge funds to their portfolios and hedge funds have now overtaken private credit as the most popular alt asset class. According to the survey, some 11% of investors are looking to cut their exposure to private credit, up from 6% in 2023.
Investor optimism for hedge funds has rebounded to its highest level since 2020, with over 85% of investors reporting that their hedge fund portfolios met or exceeded expectations this year, up from 67% in 2023.
“Given this year’s decent returns, the multi-strat space is a long way from any sort of crisis,” said Jon Caplis, CEO of hedge fund research firm PivotalPath, with multi-strategy funds tracked by the firm having returned more than 6% through June. “However, we are seeing an increasing dispersion between the better performing multi-strats and some of the pretenders to the throne who have ambition, but also struggle for scale and talent.”
