| Hedge Fund Observer: investors' interest still high, despite some woes |
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| 02/04/2006 | |
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Investor's interest for hedge funds is relatively stable year to year, according to a survey by Goldman Sachs. The investment bank surveyed 476 global investors with $650bn in assets under management. Twenty-eight percent of them said that they would increase their allocation to hedge fund in 2006. That's exactly the same result of the investment bank's previous survey, and roughly in line with the finding of the 2004 survey, when 31% of investors had said that they would boost their allocation to hedge funds. Nevertheless, if investor's interest is still quite vigorous, it is also being tempered by the performance woes of the hedge fund industry. In turn, the industry is expected to grow by 14% this year, much less than the growth rate since the beginning of the decade. Also, an increasing proportion of the money flows will be channelled directly into hedge funds instead of being invested in funds of hedge fund. This is partly due to the mainstreamization of the sector. Investors, who are becoming familiar with those vehicles, tend to become receptive to a direct investment in hedge funds, at the expense of a multi-management strategy. According to Morgan Stanley, after strong growth of 40% per year between 2002 and 2004, net subscriptions to funds of hedge funds have grown by only 6% in 2005. Multi-managers are often accused of piling up the fees without adding much added value. However, the fees of funds of hedge funds remain roughly in line with direct hedge funds. The former usually charge a fee between 1 and 2%, along with a performance fee anywhere between 5 to 20%. The most typical fee for a direct hedge fund investment evolves around the 2/20 structure, that is a 2% flat fee and a 20% performance fee. The Goldman Sachs survey showed that, for the first time in three years, the number of investors expecting a rise in hedge fund fees had fallen from 24% in 2005 to 11% this year. The trend is similar for fund of hedge fund fees since about half of the investors expect their fees to fall this year, as compared to a third of them the previous year. J.L. |
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