Institutional investors are predicting significant growth and risk-adjusted returns in the hedge fund sector over the next few years, according to new global research from Beacon Platform Inc., a provider of portfolio analytics and risk management solutions.
The study, which surveyed 100 pension funds, family offices, and insurance asset managers from key global financial hubs including the US, UK, Germany, and Hong Kong, revealed that 93 percent of respondents expect hedge fund fundraising to increase by 10 percent or more over the next three years. Of those, 14 percent foresee growth exceeding 20 percent.
Adding more than $190 billion this year
Optimism for the sector is further highlighted by the expectation that hedge funds will add more than 190 billion dollars in assets this year, with a notable 26 percent predicting increases between 250 billion and 500 billion dollars. Data from Hedge Fund Research earlier this year estimated total assets under management (AUM) for hedge funds had already reached a record 4.3 trillion dollars by the end of the first quarter, a figure expected to climb.
Institutional enthusiasm for hedge funds is driven by the belief in attractive risk-adjusted returns, with all respondents expecting positive returns over the next five years. Seventeen percent described these investments as “very attractive.” Pension funds, in particular, are leading this charge, with 81 percent planning to increase their hedge fund allocations by at least 10 percent.
Bigger hedge fund allocations expected
Source: Beacon Platform.
But more transparency, please
However, investors are not without reservations. Transparency remains a significant concern, with 88 percent of respondents agreeing that the quality of information provided by hedge funds needs improvement. Notably, 22 percent said transparency must improve “dramatically.” Risk management also emerged as a key factor, with 85 percent stating they had declined to invest in a fund due to concerns in this area.
These findings reflect an increasing trend where institutional investors demand higher standards of transparency and risk management while continuing to expand their hedge fund allocations. Despite these concerns, the industry appears poised for significant growth, supported by institutional capital looking for favourable returns amidst an uncertain macroeconomic environment.
This research underscores the growing confidence in hedge funds, particularly among pension funds, as a vehicle for diversification and returns. As investors push for better transparency and risk control, the hedge fund industry faces the dual challenge of scaling up while meeting higher expectations from institutional backers.
Asset owners want more hedge funds in next three years
Source: Beacon Platform.