Hedge fund investor appetite hit by high fees and private credit, says Goldman Sachs By Reuters

By Neil Mackenzie

LONDON (Reuters) – Global investors’ appetite for more expensive multi-strategy hedge funds has declined, Goldman Sachs said in a report to clients seen by Reuters on Friday, even though more investors plan to add hedge funds to their portfolios.

Goldman Sachs data from a survey of more than 300 investors such as family offices, sovereign wealth funds and pension plans showed that only 15% were still willing to pay so-called pass-through fees, where the hedge fund passes on its costs.

The figure is down from more than a fifth of investors who were willing to bear the extra fees at this time last year, Goldman Sachs said.

A previous report by Barclays said the largest fee-charging multi-manager hedge funds now capture more than half of the gains, leaving investors with an average return on investment of 42%, after deducting expenses and performance fees.

These hedge funds saw the highest outflows at a total of 1.5% of AUM in the first half, with total net outflows of around 1.1% of AUM across all strategies, except for systematic investment strategies, which saw net inflows.

“The flow picture remains challenging so far in 2024,” Goldman said in its report.

Goldman Sachs said endowments and foundations may have withdrawn funds to pay for other parts of the portfolio tied to private markets.

The survey also showed that the highest percentage of investors since 2020 plan to add more hedge funds to their portfolios.

Hedge funds overtook private credit for the first time as the most popular asset class overall. The much-talked-about strategy, in which companies borrow directly from specialist funds, bypassing banks and the bond market, has seen the proportion of investors looking to reduce their exposure double to 11% from 6% in 2023, the bank said.

Most investors surveyed by Goldman who were willing to spend more on alternative investments were broadly unchanged from a similar survey the bank conducted in 2023, with the exception of a big drop in interest-only funds that are long on bonds.

Client optimism about hedge funds rose to its highest level since 2020, with more than 85% of investors telling Goldman that their hedge fund portfolios will perform above or below expectations this year, up from 67% in 2023.