In 2018, a large majority of investors of Hedge funds said that their funds under-performed their target returns. Only 32% of the investors’ hedge funds met or exceeded expected returns, according to J.P. Morgan’s 2019 Institutional Investor Survey.
Nevertheless, most hedge fund investors expect to maintain, or even increase, their overall hedge fund allocation in 2019. But, capital invested in hedge funds will likely be reallocated to other strategies and new managers. The three most popular strategies that will attract more capital in 2019 are Volatility arbitrage, Global macro and Equity market neutral. At the same time, according to the survey, the three least popular fund strategies in 2019 are Long/short equity: fundamental, Long only equity and the Event driven strategy.
In terms of market trends in 2019, investors expect to see lower fees, market consolidation, and more hurdle rates. Moreover, there is a increasing appetite for illiquid and hybrid funds. These instruments typically include a draw-down feature and have a lifespan of 3-5 years. These opportunities are typically seen as uncorrelated and offer higher returns.