Institutional investors expect to dramatically increase allocations to hedge funds

Written by Adam Cadle

01/10/2024

Institutional investors are predicting strong growth and attractive risk-adjusted returns in the hedge fund sector, and are planning to back expansion with increased allocations, new global research by Beacon Platform has shown.

Almost all (93%) institutional investors questioned expect an increase in fundraising by hedge funds of 10% or more over the next three years with 14% predicting growth of more than 20%.

Beacon’s research with 100 executives at insurance asset managers, pension funds, and family offices in the US, UK, Germany, Switzerland, France, Italy, Hong Kong and Singapore found 91% expect the hedge fund industry to add more than $190bn in assets this year with 26% expecting it to add between $250bn and $500bn.

Data from Hedge Fund Research earlier this year estimated total assets under management at hedge funds hit a record $4.6trn at the end of the first quarter this year. Beacon’s research showed all institutional investors questioned believe investing in hedge funds will be attractive in terms of risk-adjusted returns over the next five years, with 17% describing it as very attractive.

However, the surveyed group have some caveats and concerns about their hedge fund investments. A large majority (88%) of these investors agree that the quality of information and transparency in hedge funds needs to improve, with 22% saying it needs to improve dramatically. This may be a contributing factor to changes in fund allocations. A slightly similar amount (85%) have decided not to invest in a particular fund because of concerns over its risk management, and almost all (93%) think that this will be a growing trend.

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