Hedge funds must adapt to investor demands for change in several areas, from fees to product innovation, much faster than they have done before if they want to compete effectively, according to a report by professional services firm, EY.
The 10th annual survey conducted via telephone interviews with hedge funds and institutional investors, revealed the number of North American investors who said they were decreasing their hedge fund allocations outpaced the amount upping their allotment for the first time since the financial crisis in 2008.
A growing preference for alternative investments -- which has been reported on throughout the year by other data providers such as Preqin, as well as in studies of flow trends -- is echoed in this research which claims 48 percent of investors anticipate shifting investments from traditional hedge funds to other alternative products over the next three-five years.
According to the research, however, only a small proportion of hedge fund managers currently do, or expect in coming years, to offer the products cited as desirable by investors, including real assets and private equity.
Authors of the research at EY advise that hedge funds should make more of a concerted effort to listen and address feedback from investors as patience continues to shrink after more than a year of underwhelming aggregate performance.