Asset AllocationJanuary 22, 2014

Alternatives Reach Over $6 Trillion in AUM in 2013

Hedge funds recorded double-digit returns in 2013, resulting in investor satisfaction and a hike in asset growth to $2.66 trillion, according to Preqin.

Reported by Featured Author

(January 22, 2014) — Alternative investment vehicles hit a record high in assets under management, reaching $6 trillion in 2013, largely thanks to solid performance and increased appetite from investors, according to Preqin.

Of the four asset classes outlined in the 2014 Global Alternatives Reports, hedge funds saw the highest growth in assets.

The report found assets in hedge funds grow from $2.3 trillion to over $2.66 trillion in 2013. Net returns recorded 11.08% for the year, with a positive start in the first quarter with returns of 3.62% and ending strongly at 3.63% in the fourth quarter.

According to Preqin, hedge fund returns were overshadowed by those of the equity markets, but still outperformed other benchmarks such as emerging market equities, fixed income securities, and commodities futures.

“The alternative assets industry has continued to demonstrate it can offer superior long-term risk-adjusted performance for investors, as well as offering key diversification opportunities or reducing volatility,” said Mark O’Hare, CEO of Preqin.

When observed long-term, hedge funds have outperformed equities, the report stated. Event driven and long/short strategies garnered the highest performance within the asset class with 16.68% and 13.47% returns respectively, and funds based in North America and Asia-Pacific enjoyed the best returns.

Funds with macro strategies lagged behind, recording a 2.94% return in 2013.

“Steady growth and limited losses during down periods have combined to keep hedge fund returns ahead of the upward trajectory of equity indices such as the S&P 500 for much of the last five years,” the report said.

Hedge funds were also able to provide investors with years of lower volatility, according to Preqin, as their five-year volatility stood at 6% at the end of 2013 while that of the S&P 500 was almost 16%.

The report said 84% of almost 150 investors interviewed found hedge fund returns met or exceeded their expectations in 2013 and only 16% stated returns had fallen short of expectations.

Despite such stellar performance, hedge funds still face challenges to overcome in 2014, the report said. Almost a third of those interviewed said performance was still an issue, with regulation, economic environment, transparency, and fees following closely.

“The ‘Investor Spring’ evident in other alternative asset classes is also evident in hedge fund investors, and their demands for greater transparency, liquidity, and more favorable fee structures are driving fund managers to raise their standards in investor relations, and have contributed to a steady decline in average fee rates,” O’Hare said.