Almost three quarters of investors expect their hedge fund portfolios to perform better in 2017 than last year, according to Deutsche Bank’s annual Alternative Investment Survey.
Performance-based gains are expected to drive industry assets to reach $3.14 trillion (€2.97 trillion) by the end of 2017, the survey found.
The poll of 460 hedge fund investors representing $2 trillion in assets found that 2016 was a year in which significant return dispersion shaped hedge fund performance.
On average, investors’ top quartile funds returned 11.22% last year while respondents’ bottom quartile managers were down 6.86%.
“Manager selection has become of crucial importance in the success of a hedge fund portfolio and investors are increasingly diverting capital to a smaller number of consistent alpha generators,” the report’s authors wrote.
The survey also concluded that the issue of management and performance fees “has moved to the forefront of investors’ minds and is playing a critical role in allocation decisions”.
Investors, who are on average paying management and performance fees of 1.59% and 17.69% respectively, are increasingly turning to quantitative strategies to improve returns.
Some 79% of all survey respondents allocate to systematic strategies, up from 70% last year. Close to half of survey respondents plan to increase their allocation in 2017.
“To become and remain part of an institutional hedge fund portfolio is ever more difficult,” said Anita Nemes, global head of Deutsche Bank’s hedge fund capital group.
“These investors not only demand better risk-adjusted returns but are increasingly calling for partnership, innovative and bespoke portfolio solutions and better aligned fee structures and terms.”
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