Opportunities and Challenges for Hedge Funds in the Coming Era of Optimization (Citi)

May 2014

KEYWORDS: Survey, hedge funds, risk management, portfolio diversification, asset management, assets under management, beta, Institutional Investors, benchmark, strategy, strategic asset allocation


Citi Investor Services

  • Citi


Citi Investor Services released their fifth annual Hedge Fund Industry Evolution survey, Opportunities and Challenges for Hedge Funds in the Coming Era of Optimization. The survey aggregates responses from a diverse group of 138 clients that collectively represent $1 trillion in hedge fund assets and $15 trillion in overall assets. The 2014 report focuses on the investor landscape for hedge funds in the post-crisis period, as well as provides asset raising projections for the industry. Additionally, the report revisits a number of key themes we have tracked over the course of the past 4 years and identifies how the strategic imperative is shifting once again in the hedge fund industry from “Diversify” to “Optimize”.

Key Findings Include:

  • The industry’s largest allocators are blurring the lines between investors and hedge funds. Many of the leading institutions that invest in hedge funds have built out their own asset management organizations to complement their specific exposures from hedge funds.
  • Once known for seeking “alpha” or excess return beyond a benchmark, hedge fund managers are leveraging the broad investor community’s increased focus on categorizing the types of “beta” risk in a portfolio and how to improve upon those return streams.
  • By 2018, we forecast core hedge fund industry AUM to rise to $4.81 trillion – an increase of 81% from the $2.63 trillion noted at the end of 2013. Institutions will account for 74% of those assets as these investors expand their use of hedge funds in risk-aligned portfolios.

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