Nell McKenzie

LONDON (Reuters) - Half of global investors surveyed by Bank of America's prime brokerage unit plan to allocate more money to hedge funds this year, while 37% want no change.

The results showed a 2% increase in the number of people looking to invest more money in hedge funds from the start of 2024, according to a report issued to clients by the bank on Friday.

The survey drew responses from 256 firms that oversee more than $1 trillion in hedge fund investments.

Bank of America's 2025 Hedge Fund Outlook report said that by 2023, the number of investors willing to sell hedge fund assets and recover their money will decrease from 12% to 7%.

The bank said dissatisfied investors believed returns should be better. Of those who were dissatisfied, 73% cited poor performance as the reason they wanted to redeem their funds.

Other reasons for investor dissatisfaction include hedge funds changing investment strategies and hedge funds simplifying or consolidating their portfolios, the survey said.

Allocators are also concerned that their hedge funds are flooding into crowded trading positions and everyone is thinking the same thing, the report said. Crowded positions can increase costs if speculators scramble to exit at the same time.

Hedge funds that are too big to invest flexibly without trading affecting the market were also a top concern, an increase from last year, the report said.

Roughly the same number of investors as last year are concerned that hedge funds that claim to specialize in one type of investment are actually making money doing other things, known as style drift, the report said.

Talent is also cited as an ongoing concern.

Small hedge fund investors with assets under $500 million were one-fifth less likely to leave.

Family offices, pension plans, endowments and foundations are most likely to take all of the money, rather than part of it, the report said.

In 2025, investors will be most interested in trading stocks and bonds, not trend followers and systemic funds that take advantage of macroeconomic events.

These hedge fund clients were more successful at bargaining compared to this time last year.

About 60% of investors received fee discounts, compared with about half last year, and the proportion of investors receiving more favorable liquidity conditions increased slightly from 17% to 22%, allowing them to buy and sell hedges at less cost Fund investment. Delay.

(Reporting by Nell McKenzie; Editing by Dara Ranasinghe and David Evans)