The majority of institutions that reduced their hedge fund investments in the first half of 2016 cited poor performance and style drift in specific funds as the chief reasons, said a survey released Tuesday by Credit Suisse's prime services and capital services units.
Of the 200 hedge fund investors surveyed, 84% said they redeemed hedge fund investments in the six months ended June 30 for the following reasons:
- single fund underperformance, 53%;
- change of asset allocation, 11%;
- single fund style drift, 10%;
- disappointment with portfolio-level performance, 9%;
- other, 9%; and
- liquidity needs, 8%.
More than two-thirds of pension fund executives — 69% — surveyed said they redeemed hedge fund assets in the first half of the year, while 75% of endowments did the same, according to the Credit Suisse Mid-Year Survey of Hedge Fund Investor Sentiment report.
Nearly all respondents who redeemed assets from hedge funds said they intend to reallocate the assets to other hedge funds. Of the 82% of those surveyed who intend to recycle hedge fund money, 56% said they will invest in a combination of new and existing hedge funds; 19% said they will invest in new hedge funds; and 7% will give more money to existing managers. About 9% of respondents said they haven't decided whether to reallocate freed assets to hedge funds and an equal percentage said they will not invest the money in hedge funds.
As to the drivers behind hedge fund investment in the second half of the year, the Credit Suisse report showed that 60% of those surveyed indicated their motivation will be opportunistic, investing in managers and strategies with good performance. About 12% said they will be motivated by continued outperformance of existing hedge fund investments.
Of other motivations, 5% said having more clarity on macro issues such as Brexit and the U.S. elections in November, and 4% said they're waiting for improvement in overall hedge fund industry returns. About 10% of respondents listed other motivations, while 7% said they would not increase hedge fund investments and 2% were undecided.