Major Upswing in HF Capital-Raising — Evening Brief – 10.07.24
Institutional investors anticipate a significant increase in hedge fund capital-raising in the years ahead, as allocators grow increasingly confident in hedge funds’ capacity to maneuver the current market environment, according to research from Beacon Platform Inc.
To leverage this expansion, however, hedge funds must prioritize the quality of their risk management and maintain elevated levels of transparency that investors are increasingly seeking prior to committing their capital.
Investors (93%) anticipate a minimum 10% increase in hedge fund industry fundraising over the next three years, with around 14% forecasting growth exceeding 20%, according to the open and cross-asset platform for portfolio analytics and risk management.
Approximately 91% of respondents anticipate that the hedge fund sector will increase its assets by over $190 billion this year, while more than a quarter (26%) predict an addition of between $250 billion and $500 billion.
Most institutional investors who were surveyed characterized hedge fund investments as “attractive” in terms of risk-adjusted returns over the next five years, with 17% labeling them as “very attractive.”
The research revealed different levels of allocation among various groups. Survey participants anticipate that over four-fifths (81%) of pension funds will augment their hedge fund allocation by 10% or more, while slightly more than half (54%) of sovereign wealth funds and 49% of wealth managers are expected to do the same.
Investors continue to exercise a degree of caution, however, regarding hedge funds, especially concerning risk management and transparency.
According to 88% of investors, the quality of information and transparency in hedge funds requires improvement, with approximately 22% asserting that it needs to improve “dramatically.” A near equivalent proportion (85%) opted against investing in a certain fund due to apprehensions regarding its risk management, and nearly all (93%) anticipate this will become an increasing trend. Beacon suggested this may be a contributing factor when it comes to investors’ changes in hedge fund allocations.
The study surveyed 100 institutional investors spanning pension funds, family offices, and insurance asset managers in the U.S., U.K., Germany, Switzerland, France, Italy, Hong Kong and Singapore.