Family offices and wealth managers are expecting growth and positive risk-adjusted returns in the hedge fund sector, leading to increased allocations, according to analysis from Beacon Platform.

Its global survey found that 15 per cent of family offices were expected to increase their allocation to hedge fund strategies by more than 20 per cent over the next three years.

Meanwhile, 19 per cent of family offices were forecast to increase allocations by between 10 and 20 per cent, and 59 per cent were expected to up their allocation by up to 10 per cent.

Just 3 per cent believed family office investment in hedge fund strategies would stay the same, and 1 per cent forecast a decrease.

There was a similar pattern observed amongst wealth managers and retail investors, with 7 per cent predicting an increased allocation of 20 per cent or more, 42 per cent of between 10 and 20 per cent, and 41 per cent of up to 10 per cent.

Around 7 per cent expected wealth managers and retail investors’ allocations to remain the same, while 3 per cent forecast a reduction.

Of those surveyed, 91 per cent expected the hedge fund sector to add more than $190bn in assets this year, while 26 per cent believed it would add between $250bn and $500bn.

Data from Hedge Fund Research earlier this year estimated total assets under management at hedge funds hit a record $4.6trn at the end of the first quarter this year.

However, respondents also identified some concerns around hedge fund investments, with 88 per cent feeling that the quality of information and transparency in hedge funds needed to improve, and 22 per cent saying it needs to improve dramatically.

Furthermore, 85 per cent decided not to invest in a particular fund because of concerns over its risk management, and 93 per cent thought that this will be a growing trend.

“Beacon’s research shows that the majority of institutional investors and wealth managers are expected to increase their allocation to hedge fund strategies as they look to diversify their portfolios and achieve better risk-adjusted returns,” the report stated.

“However, to capitalise on this growth, hedge funds clearly need to focus on the quality of their risk management and have high levels of transparency that investors are increasingly demanding before investing with them.”

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