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Investors' Hedge Fund Worries Create New Headwinds

By Lydia Tomkiw

Hedge funds entered 2018 on a streak of improved performance, but investors and consultants still have numerous concerns about the industry that are creating headwinds for managers looking to gather new assets, according to a new Preqin survey.

The chief concern is about whether or not the higher performance will keep up, with 70% of investors noting it as a key issue for 2018. Fees followed closely in second place, being highlighted by 65% of the more than 200 investors surveyed by Preqin in its annual global report. Finally, perception of the industry as a whole is also weighing on the minds of investors, cited by 38% of the survey respondents.

Consultants had similar views, with 94% ranking fees as a key challenge and 89% underscoring performance and public perception of the industry, according to Preqin’s survey of 36 consultancy groups.

Some institutional investors, like the $4.1 billion Kern County Employees Retirement Association in California and the $34 million Saint Cloud State University Foundation are again examining hedge fund allocations, as reported in MandateWire. But despite improving performance, consultants say their clients are still exhibiting high levels of caution when it comes to hedge funds.

Forty-six percent of consultants noted a reduced appetite from investors over the course of the year and 42% are recommending that their clients reduce hedge fund exposure in 2018.

“Nothing has changed from last year. Clients are still hesitant to waning in their interest in hedge funds,” says Stuart Blair, director of research at Canterbury Consulting.

“Where we are seeing interest is more in the smaller, niche hedge fund space – hedge funds that can participate in or extract value from pockets of inefficiencies in the marketplace,” he adds.


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