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Alternative Market Briefing

EY's alts survey shows headwinds for managers

Tuesday, November 06, 2018

Bailey McCann, Opalesque New York:

More investors are giving up on hedge funds. New data from EY's 2018 Global Alternative Fund Survey shows that as much as 20 percent of investors planned to scale back allocations to hedge funds in 2018. A quick look at October's dismal hedge fund performance may shed some light on why investors are looking elsewhere. By the end of last month, hedge funds broadly were down 4.9 percent according to data from Morgan Stanley. As Opalesque previously reported, October also saw a few high profile hedge fund closures as a result of lackluster returns.

For years, hedge fund managers have been explaining away poor performance by blaming quantitative easing and a lack of volatility, but as volatility returned to markets in 2018, performance hasn't improved. Trends have been too short for systematic strategies to catch them, equities managers have been hurt by crowding, and many quant funds are failing under the weight of assets in what were historically niche trades.

So where are investors going? Private equity. 34 percent of respondents in EY's survey said they planned to increase allocations to the asset class over the next year.

However, data shows that these new allocations aren't exactly sticky. Fund managers across alternative strategies report that it is becoming more difficult to raise assets ......................

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