What can the alternative assets industry, and specifically hedge funds, look forward to this year?
Don Steinbrugge has a few ideas. One that will especially please fund managers is his prediction that “Hedge fund industry assets will reach an all-time high in 2021 driven by one of the largest positive net inflows into the hedge fund industry in over a decade.”
Among his less pleasing predictions is the one that the “1 and 15” fee structure will become the norm for large institutional investors. Many already have negotiated that structure. Now, even as smaller investors may have a 1.5 and 20 fee, bigger investors will expect and receive lower fees.
In all, Steinbrugge, the founder and CEO of Agecroft Partners, a global hedge fund consulting and marketing firm, makes 10 predictions in his article for Opalesque. For the industry as a whole, his prediction about the growth of assets under management is the most positive.
“The growth in hedge fund industry AUM will largely come from institutional investors allocating away from low yielding fixed income investments to hedge fund strategies with higher expected returns, as well as strategies that are uncorrelated to the performance of the capital markets,” he says.
That growth brings with it an increase in manager search activity. “We expect 2021 search activity to be the most robust in years driven by positive flows, pent up demand and reallocations stemming from a broad dispersion of returns.”
That search activity will be accompanies by a focus on environmental, social and governance (ESG) and diversity of the manager workforce.
“Diversity of their workforce is becoming part of the manager research and due diligence process for many institutional investors,” Steinbrugge writes. “We believe this is just the beginning of a very strong trend. Hedge fund managers will be well-served to proactively embrace diversity as a critical path to their long term success.
Also of key importance, he says, will be application of ESG principles. “The global movements in support of social justice will be the catalyst; pension funds, endowments foundations and sovereign wealth funds that make up approximately 48% of hedge fund industry assets are making their voices heard on these issues,” Steinbrugge says.
His other predictions cover the continuation of remote work and virtual meetings, a blurring of hedge funds and private equity with the two increasingly converging, increased regulatory oversight, and a greater demand for long-short equity managers.
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