Half of traders wish to spend extra on hedge funds, says BofA survey

By Nell Mackenzie

LONDON (Reuters) – Half of the worldwide traders surveyed by Financial institution of America’s prime brokerage division plan to allocate more cash to hedge funds this yr, whereas 37% needed no change.

The outcomes represented a 2% uptick in these eager to spend extra on hedge funds from the beginning of 2024, a report by the financial institution to shoppers confirmed on Friday.

The survey was sourced from responses from 256 companies that oversaw a mixed quantity of over $1 trillion invested in hedge funds.

Traders who would ditch their hedge fund holdings and take their a reimbursement thinned to 7% from 12% in 2023, BofA’s 2025 hedge fund outlook report stated.

Dissatisfied traders thought returns ought to have been higher, stated the financial institution. Of those who had been sad, 73%, cited underperformance as their purpose for eager to redeem cash.

Different causes traders had been sad included when hedge funds modified their funding technique and when hedge funds simplified, or consolidated their portfolio, the survey stated.

Allocators have additionally been fearful that their hedge funds are piling into crowded commerce positions the place everybody has the identical thought, stated the report. Crowded positions can develop pricey if speculators rush for the exit on the identical time.

Hedge funds rising too giant to nimbly make investments with out their trades transferring the market was additionally a high concern which had elevated from final yr, the report stated.

Roughly the identical traders as final yr harboured considerations that hedge funds which stated they specialised in a single sort of investing really made cash by doing one thing else, or so-called type drift, it stated.

Expertise was named as an ongoing concern, as nicely.

Smaller hedge funds operating underneath $500 million in belongings had been a fifth much less prone to see their traders depart.

Household workplaces, pension plans and endowment and foundations had been the more than likely to take all of their cash off the desk, quite than partially, stated the report.

In 2025, traders are most fascinated about inventory and bond trades and fewer in development followers and systematic funds that play on macroeconomic occasions.

These hedge fund shoppers had been extra profitable in bargaining down on charges in comparison with this time final yr.

Round 60% of traders received price reductions in comparison with roughly half final yr, and there was a slight uptick to 22% from 17% who acquired extra beneficial liquidity phrases, permitting them to purchase and promote out of their hedge fund investments with much less of a delay.