Preqin Special Report

Hedge fund manager outlook

Originally published in the April 2018 issue

In November 2017, we surveyed 360 hedge fund managers from across the globe. Our study looks at fundraising and performance in 2017, hedge fund fees and an outlook for new products and capital raising in 2018. Here we present some of the key findings of our study:

Improved Performance

The performance of the hedge fund industry has been called into question in recent years, particularly in light of the extended bull run in equity markets. However, 2017 represented a return to form with hedge funds adding 11.41% over the course of the year, its highest return since 2013. This industry-wide uptick in returns was reflected in the results of our survey with fund managers: more fund managers reported that their return ambitions had been met in 2017 than in 2016.

Fundraising challenges eased and the industry reached record-high AUM

Following a challenging 2016, 2017 was a better year for the hedge fund industry with net inflows of $44bn. In turn, the results of our survey show that fund managers have found that fundraising challenges have eased over the course of 2017, and that retaining capital is also easier than the year before. These inflows, accompanied by growth in assets as a result of stronger performance, has led to the hedge fund industry reaching record-high assets under management (AUM) of $3.55tn.

However, fees and performance remain key challenges in the industry

Despite indications that investor appetite is improving, leading to inflows, coupled with stronger returns, key challenges around performance of the industry and fees remain. Fund managers are responding with new products to better align interests with their investors and counter concerns from allocators.

Fundraising in 2017

Following a challenging year for fundraising in 2016, the hedge fund industry had a better 2017, with investor inflows of $44bn. This return to positive flows from investors coupled with superior performance drove asset growth to record highs: total assets under management (AUM) of the hedge fund industry now exceeds $3.55tn. The majority of fund managers enjoyed some of this positive growth: two-thirds of respondents experienced growth in AUM over 2017. In light of investor inflows, and many managers reporting positive growth in AUM, our survey of fund managers reveals that fewer managers are finding fundraising more challenging in comparison with a year ago (Fig. 2), and more managers are finding it easier to retain capital (Fig. 3), again reflecting the improved environment in 2017.

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Hedge fund manager outlook – H1 2018