According to Preqin’s 2016 outlook for alternative asset classes, 33% of investors intend to reduce their allocation to hedge funds over the long term. Seventeen percent said the opposite. Preqin said it was the first time it had recorded this trend since it started collecting the data in 2008.
The survey noted that concerns over the poor performance of hedge funds had risen to unprecedented levels – 79% of investors said hedge funds had not met their return expectations over the past year. The previous highest level of dissatisfaction recorded was 41% in 2012.
Amy Bensted, head of hedge fund products at Preqin, said the findings should serve as a “wake-up call”.
“We have never seen such high levels of dissatisfaction with performance and negativity towards hedge funds – even when hedge funds were not performing as well as they are now,” Bensted said.
Hedge funds suffered outflows of around $ 34 billion in the first half, according to the report, making it one of the toughest periods on record, and Preqin said the industry would struggle to end 2016 on a positive note.
According to the report: “Retaining investor capital as well as fundraising could become increasingly challenging over the rest of 2016 and into 2017.”
Preqin added outflows “could potentially accelerate in the second half of the year”.
There have been few high-profile hedge funds that have successfully attracted new investor money in 2016, Leda Braga’s Systematica Investments being one of the exceptions.
Given the poor performance, hedge funds remain under pressure over the higher fees they charge their clients. The Preqin survey found that 73% were seeking further improvements to management fees, historically charged at 2% of assets.
Bensted said: “Fees have been under scrutiny for many years, but never so much as they are now.”
More than half of respondents to the survey said their interests were not aligned with those of their hedge fund manager.
Jack Inglis, chief executive officer at trade body the Alternative Investment Management Association, said: “While a small proportion of the industry’s assets has been withdrawn this year, mostly from underperforming funds and strategies, recent investor surveys by Barclays and Credit Suisse suggest much of this will be rotated back into funds and strategies thought to offer better potential.”