Herd mentality tops hedge funds investor concerns for third year running, Credit Suisse survey shows
Hedge fund investor concerns over regulatory issues have faded somewhat over the past year, while a complacent attitude toward risk has become a primary concern, according to a Credit Suisse study.
Regulatory issues drop to fifth place this year from second place last year in the list of investor concerns in Credit Suisse’s annual Hedge Fund Investor Survey. More than a third (36 percent) of investors surveyed view regulatory issues as a ‘significant’ risk this year, down from 41 percent last year.
The drop in concern about the regulatory environment comes ‘perhaps in part because investors feel managers have incorporated many of the recent regulations into their business models,’ Credit Suisse notes in the study, the results of which are based on the answers of more than 500 investors.
The fear of ‘risk complacency’ enters the top 10 list of hedge fund investor concerns this year at the number two spot, replacing regulatory issues, with 45 percent citing it as a ‘significant risk’ and 42 percent calling it ‘somewhat’ of a risk. Credit Suisse says the issue comes in part from the fear that low volatility last year has led hedge funds to become more complacent.
The top concern of investors, however, has remained unchanged over the past three years, according to Credit Suisse. The vast majority of investors harbor some degree of concern that ‘crowded trades’ and a ‘herd mentality’ will erode effectiveness of hedge funds and hurt profits.
‘As with the last three surveys, investors have continued to express crowded trades and herd mentality as the biggest threats to the industry in 2014, given the increasing challenge they pose in differentiating hedge fund performance,’ the study notes.
The number of investors who see the issue as a ‘significant’ risk holds steady this year at 48 percent while the number who see it as ‘somewhat of a risk’ is unchanged at 46 percent. Only 6 percent say the risk is ‘negligible’.
Monetary policy, with the US Federal Reserve expected to continue to taper its policy of quantitative easing and other central banks looking at easing stimulus programs, enters the list of the top 10 investor concerns this year at the number four spot. The issue is viewed as a ‘significant’ risk by 37 percent of investors and ‘somewhat of a risk’ by 49 percent.
