Recent hedge fund industry surveys show growing confidence. Nearly 50% of respondents to Broadgate Mainland’s own April 2009 hedge fund survey predicted an end to large scale investor redemptions in 2009. In the same survey, 75% of respondents expected average returns from hedge funds to be at least 5% in 2009, and for total industry assets to stop shrinking or start to grow again during the year. Redemptions do seem to be slowing.
A recent Bank of New York Mellon survey shows that institutional investors did not sell their hedge fund holdings en masse in 2008. High net worth investors were the main sellers. According to the Bank of New York Mellon survey, institutional investors represented 33% of hedge fund assets in 2005, and 43% in 2008.
Institutions, with their long term viewpoint and ability to make big investments are what many hedge funds need now. The importance of institutional investors will grow and grow. However, the hedge fund industry needs to change to meet this expected demand successfully.
Broadgate Mainland’s survey and ones by Bank of New York Mellon and also Deutsche all suggest big change for the industry ahead. In part of our survey, shown above, nearly 90% of respondents expect “demands for significantly greater transparency” from investors. This will be largely driven by institutional investors.
Institutional investors and their advisers have a strong need for detailed information. This does not just mean detailed portfolio information. They also expect proactive investor relations with a clear, transparent presentation of portfolio performance and strategy.
Better communication with investors is not the only necessity. Hedge funds also need to communicate with the media. Over 70% of our survey recipients expect “continuing media scrutiny of the industry” in 2009. In these post-Madoff days, hedge funds should actively engage with the media. Institutional investors draw comfort from seeing positive commentary about and thought leadership from hedge funds that they invest in.
Our own experience has shown that media coverage can also lead to new investment flows. PR is not just a tool to retain assets, it can also attract new investors. Traditional asset managers with primarily institutional client bases often work closely with the media to communicate their key messages to existing and prospective investors, going forward more hedge funds will follow suit.
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