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Hedge funds to prioritise investor partnerships

With ultra high net worth appetite expected to grow


Pete Carvill

Market research firm Cerulli Associates has said that European hedge fund managers need to focus on partnerships with investors through providing additional services.

The company said that 58% of respondents to its recent survey said that focusing on partnerships would be ‘a very important priority over the next 24 months’.

In a statement, Justina Deveikyte, director of the European Institutional research team at Cerulli, said: “Although providing additional services will be challenging for smaller managers, mid-sized and larger managers should aim to build holistic partnerships with their clients; this can improve investor retention even during downturns in performance.”

It said that partnerships between hedge fund managers and investors could feature reporting capabilities such as ESG metrics, exposure to investment teams, and digital content.

“In addition,” Cerulli went on, “although transparency has improved, managers will need to make further progress as investors demand more position-level exposure data, including ESG metrics at the security and fund levels. This demand is expected to stem predominantly from European institutions rather than private banks or family offices.”

Cerulli reported the results in the latest edition of The Cerulli Edge, its subscriber-only publication.

UHNW individuals

The authors of The Cerulli Edge said that European hedge funds had met or exceeded the expectations of investors over the past year, and that the outlook for the sector was more promising that it had been in the past.

They added: “Cerulli expects investors to be more open to investing in liquid alternatives, although both retail and institutional clients’ focus on private assets will inhibit growth.”

Intriguingly, it was posited by Cerulli that nearly two thirds (64%) of the private banks surveyed said that an increase in hedge fund investments would come from ultra-high-net-worth individuals over next one to two years. “We forecast,” the authors said, “their hedge fund allocations to be between 5% and 10% over that period.”

However, among family offices, high net worth individuals, and the mass affluent, there was a much smaller appetite for hedge fund investments, with 38%, 50%, and 26% reporting a predicted increase of any kind.