By Nell Mackenzie
LONDON (Reuters) – Half of the worldwide investors surveyed by Bank of America’s prime brokerage department plan to allocate more cash to hedge funds this yr, while 37% wanted no change.
The outcomes represented a 2% uptick in those wanting to spend more on hedge funds from the beginning of 2024, a report by the bank to clients showed on Friday.
The survey was sourced from responses from 256 firms that oversaw a combined amount of over $1 trillion invested in hedge funds.
Investors who would ditch their hedge fund holdings and take their a reimbursement thinned to 7% from 12% in 2023, BofA’s 2025 hedge fund outlook report said.
Dissatisfied investors thought returns must have been higher, said the bank. Of those who were unhappy, 73%, cited underperformance as their reason for wanting to redeem money.
Other reasons investors were unhappy included when hedge funds modified their investment strategy and when hedge funds simplified, or consolidated their portfolio, the survey said.
Allocators have also been fearful that their hedge funds are piling into crowded trade positions where everyone has the identical idea, said the report. Crowded positions can grow costly if speculators rush for the exit at the identical time.
Hedge funds growing too large to nimbly invest without their trades moving the market was also a top concern which had increased from last yr, the report said.
Roughly the identical investors as last yr harboured concerns that hedge funds which said they specialised in a single form of investing actually made money by doing something else, or so-called style drift, it said.
Talent was named as an ongoing concern, as well.
Smaller hedge funds running under $500 million in assets were a fifth less prone to see their investors leave.
Family offices, pension plans and endowment and foundations were the most certainly to take all of their money off the table, moderately than partially, said the report.
In 2025, investors are most fascinated by stock and bond trades and fewer in trend followers and systematic funds that play on macroeconomic events.
These hedge fund clients were more successful in bargaining down on fees in comparison with this time last yr.
Around 60% of investors won fee discounts in comparison with roughly half last yr, and there was a slight uptick to 22% from 17% who got more favourable liquidity terms, allowing them to purchase and sell out of their hedge fund investments with less of a delay.
(Reporting by Nell Mackenzie; Editing by Dhara Ranasinghe and David Evans)