Key Takeaways
- • Deutsche Bank's 15th annual Alternative Investment Survey polled 460 global hedge fund investors representing nearly $2 trillion in assets, revealing that over three-quarters plan to grow or maintain hedge fund allocations in 2017 despite 2016 headwinds.
- • Quantitative strategies are accelerating with 79% of investors allocating to quant space, driven by advances in machine learning, quantum computing, and cloud infrastructure enabling both low-fee alternative risk premia products and complex high-alpha strategies.
- • Close to three-quarters of institutional investors expect hedge fund portfolio performance to improve in 2017 versus 2016, with performance-based gains projected to drive industry assets to $3.14 trillion by year-end.
- • Institutional investors are increasingly demanding partnership models, bespoke portfolio solutions, and better-aligned fee structures and terms as conditions for remaining in institutional hedge fund portfolios, signaling a shift in manager-investor dynamics.
Summary
Deutsche Bank released its 15th annual Alternative Investment Survey in March 2017, canvassing 460 institutional hedge fund investors globally who collectively manage nearly $2 trillion in hedge fund assets. The survey captures a critical moment for the hedge fund industry, which faced performance challenges in 2016 but maintained investor confidence heading into 2017.
Despite headwinds from 2016, institutional appetite for hedge funds remained robust. According to Anita Nemes, Global Head of Hedge Fund Capital Group at Deutsche Bank, "over three quarters of investors plan to grow or maintain their allocations to hedge funds in 2017." However, this commitment comes with increasingly stringent demands. Institutional investors are no longer satisfied with traditional manager relationships; they are calling for partnership models, innovative and bespoke portfolio solutions, and restructured fee arrangements that better align manager and investor incentives.
The survey highlights a significant shift toward quantitative investing. Marlin Naidoo, Americas Head of Hedge Fund Capital Group at Deutsche Bank, noted that "79 percent of investors allocating to the space" with quant strategies accelerating across the industry. This expansion reflects both the proliferation of strategy options—ranging from simple, low-fee alternative risk premia products to complex, high-alpha offerings—and technological advances in machine learning, quantum computing, and cloud infrastructure that have enhanced quant capabilities.
Performance expectations remained constructive for 2017. Close to three-quarters of surveyed investors anticipated their hedge fund portfolios would outperform 2016 results. These performance-based gains were projected to drive industry-wide assets to $3.14 trillion by year-end 2017, signaling anticipated sector recovery and continued capital deployment into alternative strategies.
Despite headwinds from 2016, institutional appetite for hedge funds remained robust. According to Anita Nemes, Global Head of Hedge Fund Capital Group at Deutsche Bank, "over three quarters of investors plan to grow or maintain their allocations to hedge funds in 2017." However, this commitment comes with increasingly stringent demands. Institutional investors are no longer satisfied with traditional manager relationships; they are calling for partnership models, innovative and bespoke portfolio solutions, and restructured fee arrangements that better align manager and investor incentives.
The survey highlights a significant shift toward quantitative investing. Marlin Naidoo, Americas Head of Hedge Fund Capital Group at Deutsche Bank, noted that "79 percent of investors allocating to the space" with quant strategies accelerating across the industry. This expansion reflects both the proliferation of strategy options—ranging from simple, low-fee alternative risk premia products to complex, high-alpha offerings—and technological advances in machine learning, quantum computing, and cloud infrastructure that have enhanced quant capabilities.
Performance expectations remained constructive for 2017. Close to three-quarters of surveyed investors anticipated their hedge fund portfolios would outperform 2016 results. These performance-based gains were projected to drive industry-wide assets to $3.14 trillion by year-end 2017, signaling anticipated sector recovery and continued capital deployment into alternative strategies.
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