Goldman Sachs reported in a client briefing viewed by Reuters on Friday that global interest in the priciest multi-strategy hedge funds has waned, despite a growing number of investors intending to incorporate hedge funds into their investment portfolios. A survey conducted by Goldman Sachs among over 300 investors, including family offices, sovereign wealth funds, and pension schemes, revealed that only 15% are keen on boosting their investments in multi-manager strategies that involve pass-through fees, a decrease from over 20% last year. The leading multi-manager hedge funds that levy pass-through fees currently retain over half of the profits, resulting in an average return of 42% for investors post-expenses and performance fees, according to a previous Barclays report.

Harald Berlinicke, a partner at Sarnia Asset Management, commented, "If pass-through fees shrink the meal, as an investor, you must decide if the meal remains substantial or of high enough quality to accept a smaller portion. It's only when the meal is small and mediocre that your cook faces issues!" These hedge funds experienced a peak in outflows, accounting for 1.5% of managed assets in the first half of the year, with net outflows across all strategies, excluding systematic investing, reaching approximately 1.1% of managed assets.

Goldman's report noted, "The flow situation has been difficult so far in 2024." It also suggested that endowments and foundations might have withdrawn funds to support other segments of their portfolios linked to private markets. Interestingly, the survey indicated that the highest number of investors since 2020 are planning to increase their hedge fund allocations. Hedge funds surpassed private credit as the most favored asset class, while the proportion of investors looking to reduce their exposure to private credit strategies nearly doubled from 6% in 2023 to 11%.

Most investors surveyed by Goldman who were open to increasing their investment in alternative assets remained consistent with their views from the previous year's survey, except for a significant decline in interest in funds that exclusively hold long positions in bonds. Investor optimism regarding hedge funds has surged to its highest point since 2020, with over 85% of respondents to Goldman's survey stating that their hedge fund portfolios either met or exceeded expectations for the year, up from 67% in 2023.

Jon Caplis, CEO of hedge fund research firm PivotalPath, remarked, "Given this year’s solid returns, the multi-strategy sector is far from facing a crisis." Multi-strategy hedge funds monitored by PivotalPath have yielded over 6% as of June. Caplis added, "However, we are observing a widening gap between the top-performing multi-strategies and those aspiring to be leaders but facing challenges in scaling and talent acquisition."