Hedge fund failures not enough to stop asset inflows in 2015: survey

[LONDON] Two thirds of hedge fund investors said returns lagged expectations in 2014, a leading survey by Deutsche Bank showed, although industry assets are still expected to rise and pass US$3 trillion in the coming year.

The industry has more than doubled in size since the financial crisis, fuelled by growth in demand from large institutions, although several high-profile pension funds ditched hedge funds last year citing poor returns and high fees.

Portfolios returned 5.26 per cent on average in 2014, the survey of 425 global hedge fund allocators with a collective US$28.2 trillion in assets under management found, lagging respondents' weighted average target return of 8.11 per cent.

By comparison, the FTSE 100 index of leading British blue-chip shares fell 2.7 per cent in 2014, the US Standard & Poor's 500 climbed 15.4 per cent and US 10-year Treasuries, up 10.4 per cent.

For the coming year, expectations had been lowered substantially.

Just 14 per cent of respondents still target a return in double-digits, down from 37 per cent at the start of 2014, against a backdrop of increased market flux.

"That fits with the change in the investor type since the crisis. The fact two of the three trillion comes from institutional investors," said Daniel Caplan, European head of global prime finance at Deutsche Bank.

"It's a maturing of what the hedge funds are looking to produce for their most significant investor group. Risk-adjusted returns are much, much more important to institutional investors."

Event-driven, fundamental equity long-short and macro hedge fund strategies were all flagged as expected outperformers in 2015, the study found, with North America, Europe and Japan the three best-performing regions.


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