New research from Mercer Human Resources Consulting suggests that hedge funds returns are not expected to return to levels seen in the 1990s...

New research from Mercer Human Resources Consulting suggests that hedge funds returns are not expected to return to levels seen in the 1990s in the short-term, despite optimism from hedge fund managers. The majority of respondents to the survey of 17 of the world’s largest fund of hedge fund managers forecast returns from hedge funds in the range of 0 to 5 per cent above cash in the next 12 months. Longer-term returns will reach targets of 5 to 10 per cent above cash, according to the survey. The research also revealed that fee increases are expected, partly in response to higher compliance and organisational costs. Hedge fund strategies employed by fund of fund managers are also becoming more diversified, with convertible bonds and risk arbitrage popular inclusions. All the funds surveyed said they had increased exposure to the capital structure arbitrage strategy and other fixed income strategies. Other strategies that found favour with the respondents were market, long short credit, loan repackaging and catastrophe bonds.