Pension plans expect hedge funds to outperform in 2016

growthPension funds and other investors expect hedge funds to outperform equity markets this year and a number are increasing their allocations.

A Deutsche Bank survey of 504 hedge fund investors globally found 41% of respondents planned to increase their hedge fund allocations during the year.

The average pension fund has an 8% allocation to hedge funds, up from 7% last year.

Hedge funds had a tough year in 2015, according to industry data. However, just over 60% of respondents in the survey indicated their top quartile of hedge funds returned an average of 10% or more in 2015.

Meanwhile, almost half saw their bottom quartile of hedge funds lose, on average, 5% or more.

Although allocations appear to be moving upwards, hedge fund managers are nevertheless competing for a place amongst an average of 36 funds versus 60 in 2008.

Calpers, a large US public pension fund, famously said in 2014 it would disinvest in its hedge fund programme, citing complexity and cost rather than performance.

The survey found that management and performance fees have come down marginally, though the average management fee that investors pay remains unchanged year on year at 1.63%. The average performance fee trended downward slightly over the year, from 18.03% to 17.85%.

Deutsche Bank’s 14th annual ‘Alternative Investment Survey’ covered funds with $2.1 trillion (€1.9 trillion) in hedge fund assets.

“Despite a challenging year for global financial markets and for hedge funds, investors remain committed to their hedge fund programmes, with 41% planning to increase their hedge fund allocations in 2016,” said Ashley Wilson, global co-head of prime finance at Deutsche Bank.

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