- Investors expect continued growth, predicting industry AuM will reach an all time high of $2.5 trillion by year end, forecasting net inflows of $123 billion in 2013.
- Hedge funds are no longer a stand-alone asset class. Institutional investors have moved from a traditional asset class allocation to a risk-based approach. A quarter of institutional investors have adopted this approach and half of consultants recommend it to clients.
- Investors now expect steady, predictable return streams. Two thirds of investors feel that hedge funds have performed as expected or better in 2012. For 2013, 65% of investors and 79% of institutional investors are targeting returns of 5-10% from hedge funds.
- Successful fee negotiation involves compromise, whilst investors commit to top performing managers. Almost 80% of investors pay an average management fee of 1.5-2% and three quarters pay 17.5-20% for performance. Only 29% of investors who negotiate fees are successful more than half of the time.
- Institutional investors dominate hedge fund AuM. Whilst 57% of private banks decreased hedge fund AuM, almost 70% of pension funds increased their allocations. Almost half of pension funds expect to increase allocations by $100 million or more in 2013.
- The demise of fund of funds has been exaggerated, with evolved business models attracting institutional capital. 29% state that over half of new business in 2012 was for bespoke portfolios, whilst 58% of end-allocators state the main benefit of fund of fund allocations is to access niche managers, including smaller or younger funds.
Over half of the investors surveyed individually manage and/or advise over $1 billion in hedge fund assets, with 10 percent managing $10 billion or more.