Hedge funds added over $360bn in additional capital in 2013, due to both the performance of hedge funds and inflows from investors. The North American, and in particular, US-based fund industry showed the largest increase in size, adding over $300bn over the course of 2013. Much of this increase in industry assets has come from institutional investors, with 41% of fund managers reporting an increase in the amount of capital coming from these investors over the course of 2013. A large proportion of fund managers, 83%, predict that industry assets will increase further in 2014, and with concerns around fundraising easing , managers will be focusing on continuing to fulfil investor demands, as well as meeting performance objectives in order to sustain growth into 2014.
Institutional Outlook for Hedge Funds in 2014, funds in the size range $1-5bn look set to be the most sought by investors in 2014. However, smaller funds are also being considered by institutional investors as they shift away from a reliance on just the largest funds for their investments. This could mean that we see a broad range of fund managers pick up institutional mandates in 2014, and not just the extralarge funds that have been the biggest winners over recent years. Investor Plans for 2014 Coupled with a more positive outlook on the hedge fund industry, investors have also expressed a strong appetite for new hedge fund investments in 2014.
Long/ short equity strategies, among the top performing in 2013, are the most favoured by investors. Alongside this, macro funds, which have had a more diffi cult few years in terms of performance, are also commonly sought after by institutions as these investors seek non-correlation and diversifi cation. Funds of hedge funds have shown a continued decline in assets from 2012 to 2013, as investors shift their capital to single-manager funds.
However, the outlook for these funds looks more positive; we have seen an increase in some of the established groups of hedge fund investors, notably endowments, looking for funds of funds in larger numbers, as funds of hedge funds rebrand themselves as multimanagement groups which can provide niche or customized mandates. If funds of funds can attract both fi rst-time hedge fund investors through traditional products, and more established investors through innovative solutions, the sector could recoup some of its recent losses over 2014 and beyond.