Saturday, March 26, 2016

DB survey - competitive pressure with hedge funds



The growth of money flows to hedge funds continues. The recently released Deutsche Bank (DB) hedge fund survey states that assets under management will increase about 7% in 2016 and 39% of their survey respondents say that they will increase allocations.  However must investors expect to decrease the number of hedge funds they hold. There is a move to fewer managers which means there will be further fall-out with smaller hedge funds. Each manager will get a bigger allocation but there will be fewer winning mandates. If a hedge fund cannot gain scale, it is game over. 

Even though there are greater asset flows, investors do not expect big returns. Only 14% of respondents target a return of 10% or higher. More money is moving into hedge funds, but investors are expecting less from these managers. Although they are expecting less, there still is a wide distribution of returns. The survey suggests that the spread between the top managers and the those that underperform is getting wider. 


Money is moving to hedge funds but you have to perform in a competitive environment and expect that any investor will hold fewer managers but watch those managers more closing. There will be less taking of a flier on a new manager. The business is becoming industrial. To gain the attention of investors, hedge funds cannot just match the indices of their peers. The will have to meet strict due diligence standards and perform to get noticed. 

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