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Competition Continues to Increase Despite Net Capital Inflows to the Hedge Fund Industry

by Janet Chambers

  • 21 Oct 2015
  • HF

Preqin’s recent Hedge Fund Manager Outlook reported that 61% of fund managers believed that the level of competition for investor capital has been increasing over the last 12 months. The report also revealed that the challenging fundraising environment is the second largest concern for hedge fund managers today, behind performance generation. Over the first half of 2015, however, the hedge fund industry saw net inflows of $76bn, increasing the overall hedge fund industry’s assets by over $3.1tn. Despite this, fund managers are reporting that competition for capital is increasing.

However, according to Preqin’s recent Investor Outlook report, a third of investors are looking to reduce their hedge fund commitments up to June 2016. Poor performance has likely been a crucial factor for reductions in capital commitments, with 44% of investors agreeing it is a key issue facing the industry. As available capital for investment reduces, competition is likely to increase further.

Earlier in 2015, Preqin reported that 92% of hedge fund industry assets were overseen by managers in the $1bn+ club, with many investors not considering emerging managers. Furthermore, capital flows have continued to favour larger hedge funds. Fifty-nine percent of funds with more than $1bn in assets under management (AUM) reported net inflows in Q2 2015, compared with only 38% of hedge funds with less than $100mn. So far in 2015, Preqin’s Hedge Fund Analyst has seen 580 new hedge funds launched, 18% of which are managed by firms founded in the same year, making for an even tougher fundraising landscape for smaller funds and emerging managers.

With so many new fund launches and the majority of capital being allocated to the largest funds, competition shows no sign of abating, particularly when considering investors’ expectations for reduced future allocations. With this in mind, emerging managers will likely be looking to distinguish themselves further from their competitors in a bid to attract investor attention, as those investors considering emerging managers and smaller funds continue to search for the next generation of top performers.

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