Print this article

Investors Pleasantly Surprised By Hedge Fund Returns This Year

Tom Burroughes

20 December 2013

Hedge funds created a pleasant surprise for investors in 2013 more so than in the previous year as returns exceeded expectations in more cases than before, a survey by , the research firm, has shown.

The organisation interviewed 148 institutional investors with more than $60 billion invested in hedge funds to get an insight into their views for the coming 12 months.

Wealth management organisations such as family offices have been significant investors in hedge funds in recent years, although the market turmoil of 2008 has coincided with a difficult period for the hedge fund sector and increased pressure, and questioning, of the management and performance fees that hedge funds charge particularly in cases where funds do not perform much better than a long-only portfolio. Returns have been more positive in recent months, however.

“Early results of these interviews show that more investors stated hedge funds have exceeded their expectations than in any previous Preqin study,” the report said.

Some 21 per cent of investors stated hedge fund returns in 2013 had exceeded expectations; a further 63 per cent stated that returns expectations had been met. Sixteen per cent of investors felt returns expectations had not been met, a noticeable decrease from the 41 per cent that stated the same for 2012.

The results come as hedge funds have posted returns (as of 30 November) of 10.04 per cent, up from 8.24 per cent in the same period in 2012.

If performance in December continues along the same lines as the rest of the year, hedge funds could be on track to post their highest net returns since 2010, the report said.

Some 29 per cent of investors stated they are looking for hedge funds to produce high absolute returns. But consistency of returns and the ability to produce strong risk-adjusted returns were also important considerations for many investors, with 28 per cent and 25 per cent of investors choosing these as their objectives from their hedge fund portfolio respectively.

“The proportion of investors that felt that their returns expectations had not been met has fallen to its lowest level since Preqin started gathering this information, in noticeable contrast to 2012 and 2011, when dissatisfaction was at high levels among institutional investors,” Amy Bensted, head of hedge fund products at Preqin, said.

“As other results in our forthcoming 2014 Preqin Global Hedge Fund Report show, investors are looking for more than just the size of the returns their funds are posting; strong risk-adjusted returns as well as consistency and low volatility of performance numbers are also key attributes sought from hedge fund investments,” she added.