A survey of hedge funds around the world by research and advisory firm Aksia shows managers are generally confident about their investment prospects this year but worry about tight liquidity and how new European regulations hit business.

A survey of hedge funds around the world by research and advisory firm Aksia shows managers are generally confident about their investment prospects this year but worry about tight liquidity and how new European regulations will hit business. However, the survey also shows firms are generally relaxed about the controversial practice known as high-frequency trading.

Aksia polled 187 managers that together oversee more than $1 trillion of assets. This is the fourth time such an institutional hedge fund manager survey has been carried out by the firm.  

Among the findings of the report were that managers are finding liquidity and financing conditions are more challenging, with the percentage of managers reporting a deterioration in financing conditions doubling to 17% per cent versus last year's survey (8 per cent), and more than three times the number of the 2013 survey (5.5 per cent).  A third of respondents (33 per cent) said that liquidity conditions in their markets have worsened since last year.

Some 87 per cent of managers say new European Union rules on alternative investment firms “creating significant challenges for their firms, with a majority (59 per cent) reporting that they are fully reliant on reverse solicitation in European countries”. The new rules, which took effect last year, stem from the Alternative Investment Fund Managers Directive, or AIFMD, which imposes a number of requirements on hedge funds seeking to gain clients in the EU, is hurting the hedge fund sector.

On another controversial subject – the alleged negative effect of high-frequency trading on returns – the managers saying high-frequency trading has no impact on their strategy's performance increased from 62 per cent to 82 per cent.  This is a surprising result, considering the “uproar” last year about this practice, the survey authors said.

High-frequency traders try to profit from the price movements caused by large institutional trades. According to one definition, HFT is a “primary form of algorithmic trading in finance. Specifically, it is the use of sophisticated technological tools and computer algorithms to rapidly trade securities. HFT uses proprietary trading strategies carried out by computers to move in and out of positions in seconds or fractions of a second.

Those believing that high frequency trading had a negative impact dropped from 27 per cent in the 2013 survey to 11 per cent in 2015, the survey added.