Key Takeaways
- • Deutsche Bank's 15th annual Alternative Investment Survey polled 460 global hedge fund investors managing nearly $2 trillion in hedge fund assets, revealing sustained investor commitment despite 2016's challenging performance environment.
- • Over three-quarters of surveyed investors plan to grow or maintain hedge fund allocations in 2017, with close to 75% expecting improved portfolio performance compared to 2016, positioning industry assets to reach $3.14 trillion by year-end.
- • Quantitative strategies are accelerating as a dominant allocation choice, with 79% of investors committing capital to quant funds, driven by advances in machine learning, quantum computing, and cloud infrastructure enabling enhanced alpha generation.
- • Institutional investors increasingly demand partnership models, bespoke portfolio solutions, and better-aligned fee structures and terms as prerequisites for hedge fund inclusion in portfolios, signaling a shift toward more collaborative investor-manager relationships.
- • Performance-based gains are expected to be the primary driver of projected industry asset growth, indicating investor confidence in hedge fund alpha delivery despite competitive pressures and elevated fee scrutiny.
Summary
Deutsche Bank released its 15th annual Alternative Investment Survey on March 8, 2017, capturing institutional appetite for hedge funds at a critical inflection point. The survey encompassed responses from 460 global hedge fund investors representing approximately $2 trillion in hedge fund assets under management, providing one of the most comprehensive snapshots of institutional positioning available to the alternative investment industry.
Despite 2016's difficult performance backdrop for hedge funds broadly, investor commitment to the asset class remains resilient. According to Anita Nemes, Global Head of Hedge Fund Capital Group at Deutsche Bank, over three-quarters of surveyed investors plan to either grow or maintain their hedge fund allocations throughout 2017. This sustained commitment suggests institutional investors view hedge funds as a structurally important portfolio component rather than a cyclical or discretionary position.
Performance expectations are notably constructive. Close to three-quarters of responding investors anticipate their hedge fund portfolios will outperform in 2017 relative to 2016, with performance-based gains expected to drive total industry assets to $3.14 trillion by year-end. This projection reflects genuine optimism among sophisticated allocators despite the headwinds that characterized the prior year.
The survey highlights a fundamental shift in investor expectations around partnership structures and fee alignment. Beyond demanding improved risk-adjusted returns—cited as the primary investment rationale—institutional investors increasingly expect hedge fund managers to offer innovative, bespoke portfolio solutions and more flexible fee and terms structures. This marks a material change in negotiating dynamics, with scale and institutional support becoming prerequisites for capital allocation rather than differentiators.
Quantitative strategies represent the most pronounced trend, with 79% of survey respondents allocating to quant-driven approaches. Marlin Naidoo, Americas Head of Hedge Fund Capital Group at Deutsche Bank, attributes this acceleration to expanding strategy availability ranging from low-cost alternative risk premia products to complex, high-alpha offerings enhanced by breakthroughs in machine learning, quantum computing, and cloud infrastructure. This technological inflection is reshaping competitive positioning within the hedge fund industry and influencing capital flows toward systematically-driven management.
Despite 2016's difficult performance backdrop for hedge funds broadly, investor commitment to the asset class remains resilient. According to Anita Nemes, Global Head of Hedge Fund Capital Group at Deutsche Bank, over three-quarters of surveyed investors plan to either grow or maintain their hedge fund allocations throughout 2017. This sustained commitment suggests institutional investors view hedge funds as a structurally important portfolio component rather than a cyclical or discretionary position.
Performance expectations are notably constructive. Close to three-quarters of responding investors anticipate their hedge fund portfolios will outperform in 2017 relative to 2016, with performance-based gains expected to drive total industry assets to $3.14 trillion by year-end. This projection reflects genuine optimism among sophisticated allocators despite the headwinds that characterized the prior year.
The survey highlights a fundamental shift in investor expectations around partnership structures and fee alignment. Beyond demanding improved risk-adjusted returns—cited as the primary investment rationale—institutional investors increasingly expect hedge fund managers to offer innovative, bespoke portfolio solutions and more flexible fee and terms structures. This marks a material change in negotiating dynamics, with scale and institutional support becoming prerequisites for capital allocation rather than differentiators.
Quantitative strategies represent the most pronounced trend, with 79% of survey respondents allocating to quant-driven approaches. Marlin Naidoo, Americas Head of Hedge Fund Capital Group at Deutsche Bank, attributes this acceleration to expanding strategy availability ranging from low-cost alternative risk premia products to complex, high-alpha offerings enhanced by breakthroughs in machine learning, quantum computing, and cloud infrastructure. This technological inflection is reshaping competitive positioning within the hedge fund industry and influencing capital flows toward systematically-driven management.
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