Investors Have "Strong" Appetite For Hedge Funds But Performance Hasn't Always Sparkled

Tom Burroughes

3 September 2013

Although investors in the world’s $2.3 trillion hedge fund industry have fretted about performance, appetite to hold money in these vehicles remains “strong”, according to a major overview of the industry by , the research firm.

About 60 per cent of hedge fund investors are open to new opportunities in over the course of this year. Long/short equity, macro and event-driven strategies are in most demand this year, while commodity trading advisors (CTAs), which have suffered two years of flat performance, are losing traction, Amy Benstead, one of the authors of the report said.

The 90-page Preqin Global Hedge Fund Report covers topics such as statistics for hedge funds by strategy; investors; performance; an overview of CTAs and UCITS funds; funds of funds; terms and conditions; investment consultants; private wealth; fund administrators; fund auditors; fund custodians; fund prime brokers and law firms.

Preqin said it has details of more than 8,600 active hedge funds that are open to investment and details on more than 5,100 fund managers. (According to the firm, there are about 9,800 hedge funds in total around the globe.) North America accounts for 62 per cent of all hedge fund managers, with Europe at 23 per cent (of which about half are in London). Asia-Pacific and “rest of the world” make up 16 per cent of such firms.

There is no doubt that recent years have put hedge funds under pressure, although the sector returned to positive territory in 2012 after a disappointing 2012; even so, performance lagged the wider equity market. For example, the S&P 500 Index of US equities posted returns of 13.41 per cent in 2012, far ahead of the 8.86 per cent average gain of hedge funds. Even-driven strategies generally fared the best last year.

The report said that fund managers are generally optimistic about their sector for the next year; some 62 per cent of fund managers that Preqin questioned in December 2012 said industry assets will rise from the current level, and 29 per cent of them said they intended to launch a new fund.

“If the level of fund launches in 2013 suggested by our fund manager survey is reflected in the wider industry, 2013 could be a record-breaking year for fund launches, surpassing the previous high of 600 launches in 2010,” Benstead said.