Twice as many investors intend to reduce their exposure to hedge funds through the year than are looking to increase it, according to a recent report by Preqin, indicating a possible increase in redemptions this year.

Responses from investors do not fall across the board equally. Relative value strategies hedge funds are most sought-after, while twice as many investors plan to reduce their allocations to CTAs than those intending to increase them.

“Outflows accelerated over 2016, with the largest levels of investor redemptions made in Q4. Looking ahead, twice as many investors plan to reduce their exposure over the year compared to those looking to increase it, meaning further outflows look likely in 2017,” says Amy Bensted, head of hedge fund products.

Two-thirds of investors stated that their return expectations had not been met in 2016, with only 3% saying their return expectations had been exceeded, according to the report by Preqin. Interestingly, emerging markets hedge funds met the expectations of the largest proportion of investors (75%), while at the other end of the scale 73% said that discretionary CTAs had failed to meet expectations.

“With such challenges come opportunities; those fund managers that can respond to investor demands for greater alignment of interests, harness some of the volatility resulting from uncertain markets and deliver better returns will be best placed to win investor mandates,” says Bensted.