Deutsche Bank today released its 14th annual Alternative Investment
Survey, one of the industry’s largest and longest standing hedge fund
investor surveys. This year, 504 global hedge fund investors,
representing USD 2.1 trillion in hedge fund assets, share their insights
into their current sentiment and allocation plans for 2016.
“Despite a challenging year for global financial markets and for hedge
funds, investors remain committed to their hedge fund programs, with 41%
planning to increase their hedge fund allocations in 2016,” said Ashley
Wilson, Global Co-Head of Prime Finance at Deutsche Bank.
Greg Bunn, Global Co-Head of Prime Finance at Deutsche Bank noted, “we
are seeing greater demand for tailored strategies and products that
cater to investors’ changing needs and requirements. More investors are
looking to increase their allocations to products such as alternative
beta / risk premia strategies, liquid alternatives, hybrid private
equity / hedge fund vehicles and co-investment opportunities.
“Investors are becoming increasingly sophisticated in constructing their
hedge fund portfolios. The return dispersion seen in 2015 means that
choosing the right manager and constructing the right portfolio is ever
more critical, said Anita Nemes, Global Head of Capital Introduction at
Deutsche Bank. “Investors are concentrating and redesigning their
portfolios in search of less correlated, diversified return streams.”
Highlights of Deutsche Bank’s 14th annual Alternative Investment
Survey:
Hedge funds expected to deliver in 2016, with assets climbing to $3
trillion
Hedge funds are expected to outperform equity markets in 2016.
Additionally, 41% of respondents plan to increase their hedge fund
allocations during the year. Industry assets are expected to grow
approximately 5% in 2016, surpassing $3 trillion.
The argument for hedge funds in pension funds’ portfolios remains
compelling
Pension funds’ allocations to hedge funds are trending upward year on
year. The average pension fund has an 8% allocation to hedge funds, up
from 7% last year. Additionally, 71% of pension fund respondents utilise
an investment consultant, compared to just 15% in 2010. This trend is
contributing to a change in pension funds’ portfolio allocation tactics,
including a more scientific focus on alpha versus beta and greater
demands around operational excellence.
2015 return dispersion: top quartile managers deliver double digit
returns
63% of respondents indicated their top quartile of hedge funds produced,
on average, +10.0% or more in 2015. Meanwhile, almost half saw their
bottom quartile of hedge funds lose, on average -5.0% or more for the
year. Selecting the right hedge funds – those with a unique skill set,
competitive advantage and true alpha proposition – is increasingly
critical for investors. The return dispersion witnessed in 2015 is
expected to drive respondents’ portfolio changes in 2016.
Portfolio concentration continues: fewer managers, greater competition
Managers today are competing for a place amongst an average of 36 funds
(median: 25) versus 60 (median: 45) in 2008. Due to a scarcity of alpha
and capacity concerns, more investors are concentrating their portfolios
in search of higher returns, reduced overall costs and greater portfolio
efficiency.
Investors increasingly embrace quantitative strategies
Over two thirds of respondents invest in systematic strategies,
including one in every two who plan to add to one or more quantitative
sub-strategies in 2016. The largest investment consultants and pension
funds are driving demand: 45% of these respondents plan to add to one or
more systematic strategies, including quantitative equity market
neutral, CTA, quantantitive macro, quantitative equity and quantitative
multi-strategy.
Market neutral is the new black
Those managers that have demonstrated their ability to deliver alpha on
both the long and short side of the book irrespective of market
directionality are well placed to benefit from increased investors
flows. After a strong year of performance, equity market neutral
strategies are expected to be amongst the best performers in 2016, and
are also the most in-demand. On a net basis, 32% of investors are
increasing their exposure to fundamental equity market neutral (versus
17% last year), and 18% to systematic equity market neutral (versus 11%
last year).
Alternative beta / risk premia sees growing demand
20% of respondents invest in alternative beta / risk premia strategies
today, up from 15% last year and 8% the year prior. 60% of these
respondents plan to grow their allocation in 2016. We are seeing some
investors complement their core ‘alpha’ portfolios with more liquid and
cheaper alternative beta / risk premia strategies in order to allocate
risk capital more dynamically and efficiently.
Multi-strategy, event driven and credit distressed strategies:
manager rotation expected
Multi-strategy and event driven strategies are amongst those strategies
with the highest expected turnover in 2016. 16% and 20% of respondents
plan to redeem from these strategies, respectively, while 9% and 18%
plan to add. Additionally, 18% plan to add to credit distressed to add
and 17% plan to reduce.
Hedge fund fees and cost considerations move in favour of greater
alignment of interest
Management and performance fees have come down marginally, however
investors will pay for quality. The average management fee that
investors pay remains unchanged year on year at 1.63%, whilst the
average performance fee has trended downward slightly during this period
from 18.03% to 17.85%. Despite continued headline pressure on fees, 42%
of investors say they would allocate to a manager with fees in excess of
“2&20” for a new allocation.
Partnership is key
As their expectations and requirements change, investors are
increasingly looking to align themselves with strategic partners who
have the experience, expertise and resources to help them manage their
own portfolios, whether that is in the form of knowledge sharing and/or
tailored strategies and products. More than two thirds of respondents
placed “access to founders / CIOs / senior investment professionals” in
their top three factors influencing the manager selection process.
Additionally, one third of respondents today have utilised the single
investment funds to create more tailored solutions. Lastly, demand for
non-traditional hedge fund products is on the rise, with a growing
number of investors allocating to alternative UCITS strategies,
alternative ’40 Act mutual funds, hybrid PE/HF vehicles, hedge fund run
long-only and co-investment opportunities.
About Deutsche Bank
Deutsche Bank provides commercial and investment banking, retail
banking, transaction banking and asset and wealth management products
and services to corporations, governments, institutional investors,
small and medium-sized businesses, and private individuals. Deutsche
Bank is Germany’s leading bank, with a strong position in Europe and a
significant presence in the Americas and Asia Pacific.
This release contains forward-looking statements. Forward-looking
statements are statements that are not historical facts; they include
statements about our beliefs and expectations and the assumptions
underlying them. These statements are based on plans, estimates and
projections as they are currently available to the management of
Deutsche Bank. Forward-looking statements therefore speak only as of the
date they are made, and we undertake no obligation to update publicly
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Form 20-F of 20 March 2014 under the heading “Risk Factors”. Copies of
this document are readily available upon request or can be downloaded
from www.db.com/ir.
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