Investors anticipate growth of 11%, which will see total assets reach $2.5trn by the end of 2013. Returns are also expected to be significant, with 65% of investors and 79% of institutions targeting 5%-10% from their hedge fund investments.
According to Deutsche Bank’s eleventh Alternative Investment Survey, institutional investors account for the largest proportion of hedge fund capital, and pension funds in particular are showing faith in the asset class. Almost 70% increased their hedge fund allocations in 2012, while half expect to increase their hedge fund investments by $100m or more in 2013.
Private banks have been more cautious, with 57% reducing their hedge fund allocations in 2012.
The survey also revealed the changing nature of investment strategies, with 25% of institutional investors now adopting a risk-based strategy instead of an asset class approach. Half of consultants also stated that they were advising their clients to invest this way.
Funds of hedge funds are still proving popular, despite suggestions to the contrary. Bespoke portfolios accounted for 29% of new business in 2012, while over half of end-allocators extolled the benefit of being able to access niche, smaller and younger managers through these vehicles.
Almost 80% of investors pay management fees of between 1.5% and 75% pay performance fees of between 17.5% and 20%.
Anita Nemes, global head of capital introduction at Deutsche Bank, said: “Investors are increasingly looking for steady and consistent returns as they balance portfolios according to a risk-based rather than asset class approach. Top-performing managers continue to dominate, but besides performance, aligning interests with those of the investor is also critical in order to win attention from an increasingly institutional investor base.”