LONDON (Reuters) - (This Aug. 2 story has been corrected to read 'wanes for,' not 'hit by,' in the headline and to clarify that the 15% refers to those willing to increase their exposure to multi-manager strategies in paragraph 2)

Global investor appetite for the most expensive multi-strategy hedge funds has fallen, Goldman Sachs ( GS ) said in a report to clients seen by Reuters on Friday, though more investors plan to add hedge funds to their portfolios.

Goldman Sachs' ( GS ) data from a survey of more than 300 investors like family offices, sovereign wealth funds and pension schemes showed that just 15% expressed an interest in increasing their exposure to multi-manager strategies with so-called pass-through fees, where the hedge fund passes on its costs.

The figure has declined from just over a fifth of investors willing to take on the extra fees this time last year, said Goldman Sachs ( GS ).

The biggest multi-manager hedge funds charging pass-through fees now take more than half of gains back, leaving investors with an average 42% return on investment, after expenses and performance fees were deducted, said an earlier report by Barclays ( JJCTF ).

"If pass-through fees make the meal smaller, as an investor you have to decide if the meal is still big enough or of such high quality that you can live with a much smaller meal. It's when you have a small, not so great meal that your cook has a problem!" said Harald Berlinicke, partner at Sarnia Asset Management.

These hedge funds saw their highest proportion of outflows totalling 1.5% of assets managed in the first half of the year, with net outflows overall about 1.1% of assets managed across all strategies, except systematic investing strategies, which saw net inflows.

"The flows picture has remained challenging thus far in 2024," Goldman's report said.

Goldman said endowments and foundations may have withdrawn funds to pay for other parts of a portfolio tied up in private markets.

The survey also showed, however, that the highest proportion of investors since 2020 planned to add more hedge funds to their portfolios.

Hedge funds beat private credit for the first time as the most popular asset class overall. The much-hyped strategy where companies borrow directly from specialised funds, bypassing banks and the bond market, saw the proportion of investors looking to cut their exposure almost double to 11% from 6% in 2023, the bank said.

Most investors willing to increase spending on alternative investments that Goldman surveyed generally did not change their minds from a similar survey the bank ran in 2023 except for a huge drop in interest funds that take long only positions in bonds.

Customer optimism for hedge funds has rebounded to the highest level since 2020, with over 85% of investors telling Goldman that performance of their hedge fund portfolios exceeded or met expectations for this year, up from 67% in 2023.

"Given this year's decent returns, the multi-strat space is a long way from any sort of crisis," said Jon Caplis, chief executive of hedge fund research firm PivotalPath.

Multi-strategy hedge funds tracked by PivotalPath have returned more than 6% through June.

"However, we are seeing an increasing dispersion between the better performing multi-strats and some of the pretenders to the throne who have ambition, but also struggle for scale and talent," said Caplis.