As hedge funds pick themselves up from average losses of 28% last year and billions in redemptions, they will increasingly offer separately managed accounts to provide investors with liquid strategies to attract new assets, according to a report from TABB Group.
And these managed accounts will grow 70% from $468 billion this year to $790 billion over the next two years, TABB predicts.
Among the 62 U.S. hedge funds with $130 billion in assets under management that TABB surveyed for its report, 77% said that their investors’ top three concerns are operations, safety of strategy and liquidity risk. Investors are now asking more questions on topics previously seen as a minor part of the due diligence process, from safety and soundness of assets, to greater insight into the investment process, including actual holdings.
Besides a movement to offer more managed accounts, hedge funds are likely to lower fees over the next two years. While “2 and 20,” 2% flat fees and 20% of upside performance, has been the norm in the hedge fund industry in the past, the new reality, according to TABB is more like “1.75% and 21.93%.” Hedge funds are doing whatever they can to chase the limited supply of capital at hand.
In addition, survey respondents said they have lowered the average lock-up period from 13 months to 10 months.