New figures suggest the world's hedge fund industry faces a marketing problem, with more investors looking to cut exposure this year than push it up.

Investors are falling out of love with hedge funds, even as recent data shows total assets under management hitting fresh records, according to new figures.

A survey of 150 investors in hedge funds revealed that twice as many investors plan to cut exposure to such funds than to push it up, said Preqin, a research firm, which carried out the survey. Some strategies are particularly at risk of asset erosion. 

Some 38 per cent of investors intend to invest less capital in hedge funds over the next 12 months compared to the year before, while 20 per cent are looking to increase their allocations.

While the hedge fund industry posted positive returns overall last year, a period of generally lacklustre performance since before the financial crisis of 2008 has put pressure on fees (funds traditionally charged a 2 per cent annual management fee and performance cut of 20 per cent). This pressure has been felt to a greater extent than in the private equity sector, for example. One concern has been that hedge funds frequently do not provide uncorrelated sources of return and have often moved in the same direction as listed equity markets.

Figures show that total capital invested in the market remains high, however. According to a recent report from Chicago-headquartered Hedge Fund Research, the global hedge fund industry held $3.02 trillion of assets at the end of 2016, rising $46.8 billion in the final three months of the year, the second straight quarterly record for sector capital. Total capital in the sector rose by $121 billion in 2016.

Preqin said the most popular strategies among investors fall into the relative value space, while twice as many investors intend to cut commodity trading advisor (CTA) exposure as increase it.

Among other findings, emerging market hedge funds met the expectations of the largest proportion of investors (75 per cent).

Looking ahead, 28 per cent of investors expect hedge fund performance to improve in 2017 compared to the year before; 19 per cent expect the asset class to perform worse than it did in 2016.

“Preqin’s interviews with investors at the end of 2016 indicate that the fundraising challenges of the past year show little sign of abating in 2017. 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. This is undoubtedly a concern for firms in terms of both retaining capital and fundraising over the year,” said Amy Bensted, head of hedge fund products.