An Ernst & Young survey asked institutional investors how they were planning to shift their hedge fund allocations over the next three years.
The 2014 responses can be seen above, paired with responses to the same question from 2012 and 2013.
Chart credit: Ernst & Young 2014 survey
Deutsche Bank says that after a series of meetings this month with institutional investors, they’ve concluded that CalPERS’ hedge fund exit “has no bearing on most investors commitment to the industry.”
From ValueWalk:
Deutsche Bank prime brokerage notes that hedge funds have been engaged in “extreme protection buying in equities” and said that the recent exit from hedge funds by CalPERS “has no bearing on most investors commitment to the industry.”
After speaking with the institutional investor community regarding their commitment to maintain their hedge fund allocations, Deutsche Bank’s Capital Introductions group reports this positive message that it says was bolstered by recent meetings with Canadian pensions and global insurance companies throughout the month, while a trip to Munich indicated an increase in hedge fund exposure from institutions.
[…]
Separate hedge fund observers, meanwhile will be watching numeric asset flow patterns in December and the first quarter of 2015 to determine on an objective basis if there has been a statistical move away from hedge funds.
Even if institutional investors on the whole aren’t moving away from hedge funds, the exit by CalPERS – and the public debate swirling around the investment expenses associated with hedge funds – has forced some hedge funds to reconsider their fee structures. From the Wall Street Journal:
Two titans of the hedge-fund and private-equity world say they are growing more open to reducing fees in the face of rising scrutiny of the compensation paid to managers of so-called alternative investments.
[…]
Mr. [John] Paulson [founder of hedge fund firm Paulson & Co.] said he feels “pressure” to act in the wake of “enormous numbers in compensation” for hedge fund managers. Mr. Paulson, 58, earned a reported $2.3 billion last year, counting both fees and the appreciation of his own personal investment in his funds.
“Institutions are becoming a little more demanding…they are putting pressure on the management fee and the incentive fee,” he said Monday during a panel discussion at New York University’s Stern School of Business.
Joseph Landy, co-CEO of $39 billion buyout shop Warburg Pincus, echoed Mr. Paulson’s experience.
“There are a lot of private-equity managers out there who can make a lot of money before they return a dime to investors,” Mr. Landy said. “Most of the pressure [to reduce fees] has been on the actual annual management fee.”
Neither he nor Mr. Paulson, however, were too concerned about any widespread threats to their businesses.
“We came out relatively unscathed from the crisis. We’re doing pretty much the same things we did as before [with] very little restrictions on how we invest the money,” Mr. Paulson said.
Paulson said he think more hedge funds will start using “hurdles”, a fee structure which prevents managers from collecting performance fees until they’ve met a certain benchmark return.
Photo by Stephen Curtin
