Institutional investors have grown increasingly dissatisfied with hedge fund returns in the four years since the financial crash, according to new data from researcher Preqin.
About 43% of the 85 institutional investors Preqin interviewed in July said hedge fund returns were lower than expected, compared to 40% in a 2011 survey, 28% in 2010 and 27% in 2009. The percentage of institutional investors who said hedge fund returns met or exceeded expectations dropped to 57% in 2012 from 60% in 2011, 72% in 2010, and 73% in 2009, according to Preqin's latest hedge fund report.
By strategy, the vast majority of investors Preqin surveyed – 55% — said long/short equity hedge funds underperformed, followed by 18% who said returns of managed futures approaches lagged expectations.
On the positive side, 30% of respondents said returns of global macro hedge fund strategies outperformed predictions, followed by 28% for fixed-income/credit hedge fund approaches.
Preqin researchers found that its institutional investor universe is bucking the trend toward widespread abandonment of funds of funds in favor of direct investment in hedge funds. Of the 55% of investors Preqin interviewed that currently invest in hedge funds of funds, 73% said they don't plan to make a change within the next year. Just 9% said they intend to move out of fund-of-funds portfolios in the next 12 months; 3% said they intend to move to direct hedge funds over a longer time frame; and 15% said they are unsure whether they will move out of funds of funds.
Among institutions that intend to get out of hedge funds of funds, 54% cited performance as the primary reason, while 27% said investment opportunities were better through direct investment, and 18% blamed fees they consider to be too high.