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Report: Hedge Fund Managers Get Optimistic

According to alternative investment research firm Preqin, hedge fund performance is on the rise, and managers are more upbeat about their fundraising prospects.

  • Alicia McElhaney

The tides could finally be turning for hedge funds hindered by high fees, poor investor sentiment, and unexciting returns, according to a new report from alternative investment research firm Preqin.

Hedge funds managers appear to be more optimistic about the fundraising and return environment than they were a year ago, according to Preqin’s “Hedge Fund Manager Outlook,” published on Tuesday. Just 30 percent of managers surveyed by Preqin said the fundraising environment is tougher than it was a year ago, versus nearly half of all fund managers saying that at this time last year. Accordingly, some 47 percent of managers surveyed said they have a positive outlook on the hedge fund industry for the second half of the year.

One reason for the optimism is improved performance. Two thirds of fund managers surveyed reported meeting or beating their funds’ return objectives in 2017, per Preqin. In 2016, just half of fund managers reported doing the same, according to the report. Preqin reports that its All-Strategies Hedge Fund benchmark has returned more than 11 percent over the past 12 months, with some strategies, like event-driven, producing performance in the mid-teens.

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Paradoxically, the managers also said that investor attitudes toward hedge funds have gotten more negative over the past year, with 36 percent of managers saying investor sentiment is more negative than it was a year ago, versus 24 percent saying it has gotten more positive.

“Despite an improved returns environment and positive asset flows indicating investor concerns may be declining, fund managers reported that investors remain largely negative in their attitudes towards hedge funds,” according to the report’s authors.

The report noted that hedge fund managers think their most significant challenge is overcoming investor concerns about the asset class, particularly their questions about hedge fund fee structures. According to Preqin, allocator demand for more favorable fee structures is what’s driving the most change in the hedge fund industry at the moment.

Managers, though, are working on making major changes. During the first quarter of 2017, hedge funds were able to perform their best since 2009. And that trend continued during the second quarter, the report’s authors noted, with funds recording more than $25 billion in inflows during the period.

As a result, assets under management in the hedge fund industry reached an all time high of $3.38 trillion during the second quarter.

Part of the reason for the bump, though, is the geopolitical climate.

“Political events have largely led to improved hedge fund performance; for instance, the ‘Trump Bump’ – the market rally following President Trump’s electoral victory last November – had the most significant positive impact on the performance of hedge funds globally,” according to the report’s authors.

The authors also pointed to Trump’s reform policies and Brexit as other factors that helped to improve performance.

Things are looking up for hedge fund managers, so much so that some are looking to launch new funds in the second part of the year, according to the report. Thirty four percent of those surveyed said they plan to launch a fund in the second half of 2017. The market fund managers are most interested in? Interestingly, credit strategies.

“With positive inflows from investors at the start of the year, fund managers are seeing opportunities to launch new funds,” according to the report’s authors.