Global investors enjoyed solid returns from their hedge fund holdings last year, and are expecting even better results this year, according to the latest annual survey from Credit Suisse AG.
The Swiss banking giant released the 10th annual edition of its survey of 345 institutional investors (who hold a collective US$1.1 trillion worth of hedge fund investments). Almost three quarters of respondents (74%) reported that their hedge fund holdings met, or exceeded, their return expectations in 2017. This is up from just 30% last year.
In 2017, investors expected 7.25% in annual returns from hedge funds. This year, expectations are rising, with investors now hoping to see returns of 8.5% from their hedge fund allocations.
“Last year hedge funds had strong performance and also continued to improve the alignment of interests between themselves and their investors,” said Robert Leonard, managing director and global head of capital services at Credit Suisse, in a statement.
“As we begin 2018, the vast majority of institutional investors appear pleased with the contributions from their hedge fund portfolios. In fact, the number of investors who indicated that their hedge fund allocations met or exceeded their expectations more than doubled from last year, which is a very positive development for the industry,” he added.
The survey found that investors are targeting equity-focused strategies for their hedge fund allocations, including emerging markets equity, fundamental equity long/short, quantitative market neutral and equity long/short sector funds.
By geography, investors are most focused on the Asia Pacific region, emerging markets and emerging Europe. Demand for North American markets remains “relatively flat, as investors appear to be comfortable with their current allocations to the region,” Credit Suisse reports.
The survey forecasts 5.4% growth in hedge fund assets under management (AUM) in 2018, from current record levels (US$3.2 trillion in AUM).
In terms of predicting possible industry shifts in the global hedge fund industry, the survey found that investors are expecting to see a continued realignment of fees/terms, increased volatility, fund outperformance, fund consolidation, and the continued rise of strategies that are driven by artificial intelligence (AI) and focused on the emerging cryptocurrency space.