By Nell Mackenzie
LONDON (Reuters) – Half of global investors surveyed by prime brokerage Bank of America plan to allocate more money to hedge funds this year, while 37% want no change.
The results represent a 2% increase in those looking to spend more on hedge funds since the start of 2024, the bank’s report to clients showed on Friday.
The survey was based on responses from 256 firms that oversee a combined amount of more than $1 trillion invested in hedge funds.
Investors who would exit their hedge fund holdings and return their money decreased to 7% from 12% in 2023, according to BofA’s 2025 Hedge Fund Outlook report.
Dissatisfied investors felt that the returns should have been better, the bank said. Of those who were dissatisfied, 73% cited poor performance as the reason they wanted to cash out.
Other reasons investors were unhappy included when hedge funds changed their investment strategy and when hedge funds simplified or consolidated their portfolios, the survey said.
Allocators were also concerned that their hedge funds were piling into crowded trading positions where everyone had the same idea, the report said. Crowded positions can become expensive if speculators rush to exit at the same time.
Hedge funds that have become too big to invest deftly without their trades triggering the market were also a major concern that increased from last year, the report said.
About the same investors as last year raised concerns that hedge funds that said they specialized in one type of investment were actually making money doing something else, or so-called style drift, it said.
Talent was also cited as an ongoing concern.
Smaller hedge funds with assets under $500 million were a fifth less likely to have their investors leave.
Family offices, pension plans and foundations and foundations are most likely to take all of their money off the table, rather than a portion, the report said.
In 2025, investors are most interested in stock and bond trades, and less in trends and systematic funds that play on macroeconomic events.
These hedge fund clients were more successful in negotiating fees compared to this time last year.
About 60% of investors received fee discounts compared to about half last year, a slight increase to 22% with 17% receiving more favorable liquidity terms, allowing them to buy and sell hedge fund investments with less money . postpone.
(Reporting by Nell Mackenzie; Editing by Dhara Ranasinghe and David Evans)
