Each year the good people at Deutsche Bank poll their investor contacts and produce one of the only documents that approximates actual research on the mindset and predilictions of hedge fund investors. The survey aggregates the responses of over 1000 investors representing $1.1 trillion AUM and offers unique insights into the push/pull factors confronting the allocation cycle. We received a number of requests from our hedge fund members for the full document.
We have summarized the highlights of the 90-page document below highlighting the findings that have the most significance for the marketing cycle.
These findings have significant implications for how you present your investment story – both in the materials and in person.
If elements of your strategy feature aspects that are now in favor of investors – then don’t hide it. If there are elements that are not in favor, be prepared to discuss.
1. Hedge Funds Serve a Specific Purpose:
According to investors, hedge funds fulfill a specific role in the portfolio. The main benefits are 1) Diversification 2) low correlation 3) Absolute returns
2. Investors interested in long-vol, nimble strategies…..and distressed:
Expected top performers for 2009 are Global Macro, CTAs, and equity long/short. While distressed disappointed in 2008, it remains a top choice for 2009.
3. Cash levels high
Respondents sitting on $294 bn in cash although a large % preferred not to answer the question so the actual number is likely much higher.
4. The Three P’s now the mouthful – PRPTP
Traditionally the top factors investors looked for was Performance, Philosophy and Pedigree.
In 2009, DB learned that the order is now
Performance, RISK MANAGEMENT, Philosophy, TRANSPARENCY, and Pedigree.
5. Managed Accounts, Managed Accounts, Managed Accounts….
Overwhelming interest in managed accounts. 43% of investors are now more likely to make investments via managed accounts. To demonstrate the comparison in 2004 20% of investors used M.A.’s, in 2009 over 50% use managed accounts.
6. Regional performance predictions:
The US was expected to perform best. Eastern/Central Europe, Russia and Western Europe were expected to perform worst.
7. Expect outflows to continue
Over 66% of investors expect hedge fund assets to decrease a further $168 bn.
8. Not optimistic on markets, more sanguine on portfolio
71% expect markets to be down, however, 92% think that their performance will deliver positive performance.
9. Portfolio breath and allocation size decreases
The survey revealed that investors are reducing the number of managers in the portfolio from over 63 in 2008 to over 54 in 2009. In addition, the allocation size almost halves from 2008 to 2009.
10. Redemptions remain biggest challenge facing managers
Investors expect their managers to face considerable headwinds in 2009. In order of significance, investors ranked Redemptions, illiquid markets, performance, restructurings, cost of financing, justification of fee structure and regulatory/tax issues as the key issues facing managers.
11. Launch dynamics – considerations for new funds
Fewer investors are interested in being day 1 investors however, there are more investors that interested in seeding. The study concludes that while fewer investors are interested in being day 1, those that are, are NOT content to be an LP, rather they want to participate in the GP or some form of shared economics.
Download the DB Alternative Investment Survey