Robert Leonard, Managing Director and Global Head of Capital Services at Credit Suisse, said:
"Institutional investors remain strongly committed to hedge funds playing a role in their portfolios. However, they also appear to be following through and making real changes to their hedge fund allocations. This includes increased concentration with funds in their portfolios, adding strategies that are less correlated with equities and terms/structures that better align their long-term interests with those of their managers."
"Importantly, after years of discussion, it appears that there is now real progress being made by institutional investors and hedge fund managers in finding an equitable middle ground. While still an ongoing dialogue, it is nevertheless encouraging and a positive sign for the hedge fund industry going forward."
Other findings from the Survey included:
- Sector Funds: Investors reflected a pivot from broad based Equity strategies towards sector focused ones. Top Equity Sector strategies include Healthcare (#5) with 16% net demand, Financials (#7) with 15% net demand and TMT (#12) with 10% net demand. Net demand for Equity Long/Short Fundamental declined, falling from #5 last year to #13 this year.
- Quantitative/Systematic: Other strategies identified by investors for potential allocations in 2017 include systematic strategies like Equity Market Neutral – Quantitative (#4) with 17% net demand and Global Macro – Systematic (#6) with 15% net demand. This is a continuation of the trend from last year's survey highlighting increased investor interest in quantitative strategies.
- Ongoing commitment: 87% of investors indicated that they would maintain or increase their hedge fund exposures in the coming year. This is identical to last year, when 87% of investors also indicated that they would be maintaining/increasing their hedge fund allocations.
- Target Returns: only 30% of investors said that their hedge fund portfolios had met or exceeded their expectations this year, down from 45% last year. Looking forward, investors shared that they were targeting annual returns of 7.2% for their hedge fund portfolios in 2017, above the industry average returns of 5.5% last year.
- New launches: There remains significant appetite for start-up funds, with slightly less than half (44%) of respondents reporting investing in a start-up fund last year. Of those who allocated to a new launch last year, about 75% reported receiving discounted or founders' share class terms.
- Key Factors in Selecting Hedge Funds: The top three factors indicated for selecting hedge funds in an institutional portfolio were returns after fees, non-correlation with other investments, pedigree of risk takers and core team stability. Investors also considered risk management skills to be a very important factor in manager selection as well.
- Drivers of Redemptions: As in years past, mostly idiosyncratic factors drove redemptions – 80% of investors redeeming cited individual manager underperformance, while another 52% cited changes at manager (whether style drift or investment professional turnover, among others).
- Significant Developments in 2017: When asked about potentially significant developments that might occur this year, investors mentioned additional fund closures, more fee compression, better alignment of terms and a decrease in the amount of financial regulations impacting hedge funds.
The survey, produced by Credit Suisse's Hedge Fund Capital Services Group, is one of the most comprehensive in the industry —focused on pension funds, endowments, foundations, consultants, private banks, family offices and funds of hedge funds—and with respondents diversified across all regions.
For a copy of the complete survey, please click here.
Credit Suisse AG
Credit Suisse AG is one of the world's leading financial services providers and is part of the Credit Suisse group of companies (referred to here as 'Credit Suisse'). As an integrated bank, Credit Suisse offers clients its combined expertise in the areas of private banking, investment banking and asset management. Credit Suisse provides advisory services, comprehensive solutions and innovative products to companies, institutional clients and high-net-worth private clients globally, as well as to retail clients in Switzerland. Credit Suisse is headquartered in Zurich and operates in over 50 countries worldwide. The group employs approximately 47,170 people. The registered shares (CSGN) of Credit Suisse's parent company, Credit Suisse Group AG, are listed in Switzerland and, in the form of American Depositary Shares (CS), in New York. Further information about Credit Suisse can be found at www.credit-suisse.com.
Credit Suisse Prime Services
Credit Suisse Prime Services delivers outstanding core financing and operating services that hedge fund and institutional clients require, including start-up services, product access, high-touch client service, financing, access to sources of capital, risk management, and managed lending. Prime Services delivers the strengths of Credit Suisse's investment banking, private banking and asset management business to a focused number of clients. As a partner, Prime Services is committed to bridging the gap between idea and execution and ultimately functioning as the provider of choice for both the alternative and traditional investment communities. Credit Suisse Capital Services is part of Credit Suisse Prime Services and is responsible for introducing hedge fund managers to a broad range of institutional investors (including Funds of Hedge Funds, Family Offices, Private Banks, Endowments and Foundations, and Public and Corporate Pensions) who are seeking to allocate capital to Hedge Funds.
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SOURCE Credit Suisse