Hedge funds are frustrated, as evidenced by the recently published Preqin Investor Interviews. If hedge funds do not perform this year, there will be significant changes in allocations. The number of respondents to the survey who said that returns fell below expectations increased by 50% in one year to the highest levels reported. Only 3% of investors believed that returns exceeded expectations. This was tied for the lowest levels reported.
The highest levels of frustration was with discretionary CTA's where 73% of respondents believed returns fell below expectations. Macro and systematic CTA's both had returns that fell short of expectations as measure day the survey of more than 50%. The only strategies that had higher levels of expectations that fell short were equity strategies and activist managers.
The low returns for this year has led to reduced confidence in hedge fund managers over the last 12 months. 47% of investors have reduced their confidence levels with only 10% saying they have increased confidence in hedge fund managers. This reduced confidence is coupled with over 50% of investors believing that hedge funds will perform worse in 2017.