Institutional investors are sending a strong message to hedge funds after last year's largely lackluster returns: Charge us less and perform better.
 
Nearly one quarter of 134 investors polled by Preqin Ltd said fees would be a key issue in 2015, the research group wrote in its first-half outlook, released on Thursday.
 
And 30 percent of investors said fees will factor into their manager selections, up from 21 percent who said they took costs into account when the group was last polled in 2013.
 
The data could put fresh pressure on managers to trim fees after the industry posted its worst results since 2011 last year and after the California Public Employees' Retirement System, the biggest U.S. pension fund, decided in 2014 to exit hedge funds altogether.
 
Ever since the $300 billion fund Calpers called hedge funds too costly and complicated, industry analysts and managers have been monitoring investor sentiment closely for signs of other possible defections. Preqin researchers found, however, that the bulk of the investors they polled late in 2014 are sticking with hedge fund investments.
 
Still, 68 percent of the respondents said that fees, made up of a management fee plus a performance fee, should be reduced this year. In 2013, only 45 percent of investors demanded cuts.
 
"This highlights the growing concerns investors have surrounding fees, particularly in the low-return environment of 2014," Preqin wrote. In the past, many investors felt that managers were able to dictate fees because returns were good and demand was strong.
 
Investors were polled at the tail end of 2014, when the average hedge fund returned only 3 percent, marking the industry's worst returns since 2011. Disappointment over returns was evident in the survey.
 
Preqin said that 35 percent of all respondents, more than double the number from the previous survey, felt that hedge funds failed to meet investors' expectations.
 
Nevertheless, the large majority of investors, 84 percent, said they planned to maintain or increase their allocations to hedge funds this year. Roughly half said they would put in as much as $50 million in new capital, while 8 percent said they would put in $500 million or more.