Goldman Sachs PB - 13th annual global hedge fund investor survey


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Goldman Sachs PB - 13th annual global hedge fund investor survey

  1. 1. Goldman Sachs Prime Brokerage OfficesSECURITIES DIVISIONBoston125 High StreetBoston, MA 02110Chicago71 South Wacker DriveChicago, IL 60606Hong KongCheung Kong Centre2 Queen’s Road CentralHong KongLondonPeterborough Court133 Fleet StreetLondon EC4A 2BBNewYork200 West StreetNew York, NY 10282San Francisco555 California StreetSan Francisco, CA 94104Singapore1 Raffles Link07-01 South LobbySingapore 039393TokyoRoppongi Hills Mori Tower10-1, Roppongi 6-chomeMinato-ku, Tokyo 106-6147Thirteenth Annual Global Hedge Fund Investor Survey 2013Goldman Sachs Prime BrokeragePrepared by Goldman Sachs Prime Brokerage. In evaluating thismaterial, you should know that it could have been previouslyprovided to other clients and/or internal Goldman Sachspersonnel, who could have already acted on it.The views or ideasexpressed here are those of the desk and/or author only and arenot an ‘official view’ of Goldman Sachs; others at Goldman Sachsmay have opinions or may express views that are contrary tothose herein.This material is not independent advice and is nota product of Global Investment Research.This material is a solicitation of derivatives business generally,only for the purposes of, and to the extent it would otherwisebe subject to, §§1.71 and 23.605 of the U.S. CommodityExchange Act.WL0944 - 13th Annual Global Hedge Fund Survey Cover Final.indd 1-2 02/05/2013 14:57:31This is NOT the full report.This document comprises onlyselected highlights of the surveyfindings. If you would liketo request a full copy of the survey,please see the last page.
  2. 2. Securities Division | Prime BrokerageGlobal Hedge Fund Investor Survey 201326%8%7%8%8% 2013 marks the 13th year of our Global Annual Hedge Fund Investor Survey and, as in prior years, the breadth and diversityof both responses and respondents provides insight into a continuously evolving industry. This year’s survey incorporates responses from 730 distinct investor groups globally, representing around $1.4 trillion ofassets invested directly in hedge funds. As in prior years, responses were analysed to eliminate double-counting of assets(for example, when looking at the invested assets reported by Consultants as well as their underlying investors) to providethe most accurate assessment of how and where capital is being deployed. Arguably the most significant trend that continues to manifest itself is the institutionalisation of the buyer base for hedgefunds. This year, institutional investors such as Pension Plans, SWFs* / Corporate Treasuries, Insurance Companies,Endowments / Foundations and their Consultants have grown to represent 47% of hedge fund buyers by assets, comparedto 40% as recently as a year ago, and less than 20% in 2008.Breakdown of Responses* Throughout the document, SWF stands for Sovereign Wealth Fund.** Other Europe comprises Austria, Germany, Italy, The Netherlands, Portugal and Spain.ByTypeByLocationInstitutional Capital:Managed AccountPlatform 1%InstitutionalCapital47%PrivateCapital17%Fund ofFunds35%ByAUM10%7% 3%9%3%4%24%5%Managed AccountPlatform 1%InstitutionalCapital32%PrivateCapital34%Fund of Funds33%By# ofRespondentsInstitutional Consultant / AdvisorInsurance CompanyPrivate Capital: Private Bank Family OfficePension PlanSWF / Corporate Treasury Endowment / FoundationHigh Net Worth Consultant / AdvisorEurope:17%10%5%2%1%4%4% 2%ByAUMAmericas55%Asia-Pacific 6%Europe /MENA39%15%10%3%2%3%10%6%3%By# ofRespondentsAmericas48%Asia-Pacific 8%Europe /MENA44%UK Switzerland Middle East France Scandinavia Other Europe**Asia ex-Japan JapanAsia-Pacific:1%2%4%Introduction
  3. 3. Securities Division | Prime BrokerageGlobal Hedge Fund Investor Survey 2013Investor Universe Respondents: 730 investors representing $1.4 trillion in assets invested directly in single manager hedge funds. Geographic Split: 55% of respondents by AUM from the Americas, 39% from Europe / MENA and 6% from Asia-Pacific. Investor Split: 47% Institutional Capital, 35% Fund of Funds and 17% Private Capital.Industry Trends and Developments Industry Growth: The hedge fund industry grew by 12%* in 2012 (2%* excluding performance gains) and allocators expectthe industry to grow a further 8% in 2013. However, they expect on average to grow their own assets by 11%. Institutionalisation of the Industry: Institutional direct allocators, who represented less than 20% of the industry at theend of 2008, rose to 47% at the end of 2012. Growing Importance of Advisors / Consultants: 60% of Pension Plans and 45% of Insurance Companies stated theyuse Advisors / Consultants. Highest Ever Concentration of Hedge Fund Assets Managed by the Largest Allocators: Investors with over $10 billionAUM represent 46% of global hedge fund assets, the highest our survey has ever recorded, and up from 39% at YE 2011. Fees: Survey respondents said 83% of their investments in 2012 were made on full fees instead of individually negotiatedfees. The average fee level across allocators’ hedge fund portfolios is 1.65% management and 18.3% performance fees. Return Expectations: For 2013, investors on average are targeting returns of 9.2% for their hedge fund portfolios.Insurance Companies target the lowest returns at 6.6%, while for the second year running, Family Offices have the mostaggressive expectations for their hedge fund portfolios, stating targeted returns of 10.4%. New vs. Existing Investments: Allocators are planning to deploy approximately half of all net inflows into managers theyare currently invested with. This figure has gradually been declining over the years (in 2005, approximately two-thirds ofinflows were being earmarked for existing investments).Strategy and Geographic Appetite Equity Long / Short managers continue to represent around a third of a typical allocator’s portfolio, with the weightingexpected to increase during 2013. Family Offices and Funds of Funds are most overweight this strategy relative to theaverage investor portfolio, while Pension Plans and SWF / Corporate Treasury investors are most underweight. Event Driven strategies are expected to feature more prominently in investors’ portfolios over the course of 2013, withinvestors expecting their allocation to rise from 9% at the end of 2012 to 10% at the end of 2013. Geographic Allocation: 43% of the average investor’s portfolio is allocated to managers focused on the US / Canadamarkets and 25% is allocated to managers with a Global mandate. In 2013, investors plan to increase exposure to Asia andEurope.Portfolio Construction and Allocation Process Cash Levels: Cash levels in investors’ portfolios are now at a post-2008 low of 5.8%, less than a third of their peak levelslast seen in the first quarter of 2009. Turnover: Turnover of hedge fund investments is around 16% on average, below pre-crisis (2006-2007) average levels forthe first time since 2008. Liquidity of Hedge Fund Investments: Close to 80% of assets deployed by investors are currently invested in funds withquarterly or shorter liquidity after the expiry of any initial lock up period. This compares to 93% at the end of 2011. Allocation Process: In 2012, the majority of allocators met over 100 managers that they were not currently invested withand 70% of investors subsequently allocating to 5 or fewer managers during the year. New Allocations: Over a third of new allocations were smaller than $5 million, while 11% of respondents pointed to theiraverage allocation size being $50 million or more in 2012. Minimum AUM: 53% of the investors stated they require a minimum AUM in a fund before they can allocate. Interestingly,the average minimum AUM requirement fell for the first time since 2003, and currently stands at $226 million (down from$237 million in 2011). What Matters Most? Over 80% of respondents stated that Independent Valuation Agents, a Long Term Track Record andCounterparty Risk Provisions were “Very Important” or “Important” considerations in positively influencing their allocationdecisions.Alternative Investment Structures Managed Accounts: 32% of allocators deploy capital through managed accounts, and this is expected to increase to over40% over the course of this year. UCITS: 59% of European based allocators also invest in UCITS hedge fund managers. 63% of UK respondents are alsoUCITS buyers, while this figure is over 80% for Spanish, Italian and French investors. 40 Act: 24% of Americas-based investors tell us they currently do, or are planning to, allocate to hedge funds in a 40 Actstructure.* Source: HFR Global Hedge Fund Industry Report 2012.Survey Highlights
  4. 4. Securities Division | Prime BrokerageGlobal Hedge Fund Investor Survey 2013Focus on: Institutions Continue to Drive Incremental Demand 1Focus on: Fees 3Growth Among Investors: Who, Where and How? 5I. Growth Rate Expectations 5II. Investor Asset Concentration 7III. Source of Capital for Intermediaries 8IV. Liquidity of Source Capital 8A. Recent Evolution 8B. Liquidity of Current Source Capital 9What Strategies are Investors Allocating to? 11I. Strategy Allocation 11A. Strategy Allocation 11B. Changes in Strategy Allocation 13C. Appetite for Sector-Specific Equity Long / Short Strategies 14II. Regional Allocation 15A. Current Allocation 15B. Changes in Regional Allocation 15How Do Investors Construct their Portfolios and Manage their Return Expectations? 17I. Current Portfolios 17II. Historical Returns 19A. Average Net Return in 2012 19III. Return Expectations 20A. Investors’ Expectations from their Hedge Fund Allocations 20B. Target Net Return for 2013 20C. Benchmarking 22IV. Portfolio Turnover 23V. Redemption Activity 24VI. Cash Levels 26Understanding the Allocation Process 27I. New vs. Existing Investments 27II. Allocation Process 28III. New Allocations by Size and Track Record 29IV. Investing with Recent Launches 30V. Minimum AUM Requirements 32VI. Liquidity and Gates 33A. Liquidity of Allocations (after Lock-Up Period) 33B. Willingness to Allocate to Funds with Gates 34C. Appetite for Different Types of Gates 34VII. What Matters Most to Investors When Considering an Allocation 35Alternative Investment Structures 37I. Allocation Through Managed Accounts 37II. UCITS 38III. 40 Act 38Acknowledgement and Disclaimer 39Table of Contents
  5. 5. Securities Division | Prime BrokerageGlobal Hedge Fund Investor Survey 2013For a full copy of the survey please contact: Americas: Asia: Europe: lauren.singers@gs.comPlease note distribution of the full document is restrictedto clients of Goldman Sachs Prime Brokerage and Investorswho completed the survey.
  6. 6. Copyright 2013 Goldman Sachs. All Rights Reserved.Unless cited to a third party source, the information in this material is based solely upon results of the Thirteenth Annual Global Hedge FundInvestor Survey (the “Investor Survey”) and the personal observations of members of the Goldman Sachs Capital Introduction team.Industry-wide information in this material may have been extrapolated solely from the Investor Survey and therefore may not be representativeof the overall hedge fund industry. This material has been prepared and distributed by Goldman Sachs for informational purposes only andshould not be construed as legal, accounting, tax or other professional advice. You should consult with your own independent legal,accounting, tax and other professional advisors before taking any action on the basis of this information. This material is confidential and maynot be disclosed to any person other than the intended recipient without the express written approval of Goldman Sachs. No part of thismaterial may be (i) copied, photocopied, or duplicated in any form, by any means or (ii) redistributed, without Goldman Sachs’ prior writtenconsent.This Survey has been prepared by the Securities Division and is not the product of Global Investment Research. It is for your generalinformation only and we are not soliciting any action based upon it. It does not take into account your particular investment objectives, financialsituation or needs. The information provided in the material is based upon sources believed to have been reliable by Goldman Sachs only as ofthe date indicated, but Goldman Sachs has not taken any steps to verify the accuracy or completeness of the information. Neither GoldmanSachs nor any of its officers, employees, agents, affiliates or advisers make any representation or warranty as to the accuracy or completenessof the material or are under any obligation, express or implied, to update the information to correct any inaccuracies it may contain or to reflectany changes that may occur in the future.Goldman Sachs has or may develop a business or client relationship with you, which may have an investment advisory or discretionary aspectto it ("Advisory Relationship"). Any information or material accompanying this disclaimer is not being, and shall not be deemed under anycircumstances to be, provided to you as part of such Advisory Relationship. In addition, unless expressly agreed to the contrary in writing,Goldman Sachs shall be under no obligation as a result of such Advisory Relationship to provide you with any advice or recommendations inconnection with the accompanying material or any further information or material relating to any particular fund or manager referenced therein.By accepting receipt of this information, you are acknowledging that(A) either you (1) are an investment manager with authority over one or more prime brokerage accounts for hedge fund(s) at Goldman Sachsor (2) are a self-directed, sophisticated investor whom is experienced in investing in hedge funds, control assets (or, if an individual, havea net worth) of at least US$5 million (or the local currency equivalent) and have a minimum of US$25 million (or the local currencyequivalent) currently invested directly or indirectly in hedge funds (a “Hedge Fund Investor”). If you are a Hedge Fund Investor,(B) all information to be forwarded to you by us will be supplied pursuant to your continuing request that we periodically provide and updateyou with information about funds, managers, investment strategies and upcoming events.(C) (i) investments in hedge funds are speculative, involve a high degree of risk, and are illiquid, (ii) hedge funds may be highly leveraged andtheir performance can be volatile and (iii) you could lose all or a substantial amount of any investment you make in a hedge fund.(D) you are solely responsible for reviewing any fund, the qualifications of its manager, its offering, including offering documents, and anystatements made by a fund or its manager and for performing such due diligence as you may deem appropriate, including consulting yourown legal, tax and investment advisors, and(E) any information provided by Goldman Sachs shall not form the primary basis of any investment decision you may make.Goldman Sachs has or may develop one or more business relationships with a fund or manager, including acting as prime broker, custodian,broker, dealer, clearing agent, or administrator. The fees, commissions and other revenues Goldman Sachs earns or expects to earn throughsuch business relationships may be a significant factor in Goldman Sachs determining which managers participate in our introduction program.In addition, Goldman Sachs, operating through various affiliates, principally Goldman Sachs Asset Management ("GSAM"), and GoldmanSachs Asset Management International ("GSAMI"), forms and manages its own hedge funds, which funds may participate in the capitalintroduction program. Furthermore, Goldman Sachs Princeton LLC ("Princeton LLC"), which is also an affiliate of Goldman Sachs, forms andmanages "funds-of-funds", invests in hedge funds that are prime brokerage clients of Goldman Sachs and participates as a potential investor inthe capital introduction program. Through its relationships with funds or managers, Goldman Sachs may possess information about such fundsor managers, including, potentially, the fact that a managers or funds relationship with Goldman Sachs has been terminated. With respect tosuch information, whether or not material, and whether negative or positive, Goldman Sachs has no responsibility to, and may not, disclosethat information to you. The foregoing relationships between Goldman Sachs, funds or managers, and GSAM and Princeton LLC, could conflictwith any relationship Goldman Sachs may have or will have with you. Further, Goldman Sachs has or may develop a business or clientrelationship with you, which may have an advisory or discretionary aspect to it ("Advisory Relationship"). Any information or materialaccompanying this disclaimer shall not be deemed under any circumstances to be provided to you as part of such Advisory Relationship. Inaddition, unless expressly agreed to the contrary, Goldman Sachs shall be under no obligation as a result of such Advisory Relationship toprovide you with any advice or recommendations in connection with the enclosed material or any further information or material relating to anyparticular fund or manager referenced therein. You should not construe silence by Goldman Sachs at any time as approval or endorsement ofany statements made by a fund or its manager.Nothing in the foregoing shall be construed as excluding or restricting any duty or liability to you on the part of Goldman Sachs International,Goldman, Sachs & Co., Goldman Sachs (Asia) L.L.C. or Goldman Sachs Japan Co., Ltd. (as applicable) arising under the securities laws oftheir respective jurisdictions of organization. Goldman Sachs International is authorised by the Prudential Regulation Authority and regulated bythe Financial Conduct Authority and the Prudential Regulation Authority.