The total assets of the hedge fund industry are expected to grow by 12% to a record of $2.8 trillion, according to the 2014 Credit Suisse Global Survey of Hedge Fund Investor Appetite and Activity. Hedge fund assets could also reach $3 trillion in the best case scenario. The report surveyed 500 single-manager hedge funds, of which 47% of total respondents were headquartered in the Americas, 42% in EMEA and 11% in Asia.
Hedge fund assets to increase by $300 billion
The industry expects $300 billion to add to the hedge fund industry’s asset base, both through performance returns and new allocations. By strategy, these managers will be putting their money into the event-driven category, accounting for 49% of the net demand. The represents the highest upswing in demand on a year-over-year basis, up 19% from 2013. CS points that the current markets make it more easier to buy businesses rather than building up new ones, therefore hedge funds are poised to invest more in the event-driven strategy. The event-driven strategy was also the winner in 2013 – the CS Event Driven Hedge Index rose 15.5% last year.
Managers shun emerging markets, embrace developed Europe
Unsurprisingly, Emerging Markets remained at the low end, with demand for EM-equity falling from 34% in 2013 to 11% in this year’s survey. Similarly appetite for EM-fixed income assets was negative at -3%, according to the CS report.
The report further shows that investors’ demand for structured credit has also fallen, down to -6%, meaning that hedge funds will sell their holding in ABS and other related instruments. This loss of appetite for structured credit represents a 22% decline in demand on a y-o-y basis. The worst performing category of last year, CTA/Managed Futures is also being shunned by investors in 2014 with net demand falling to -10% and reducing 17% on y-o-y basis.
The survey also found which geographical regions would be investment hotspots for hedge funds this year. Demand for developed Europe rose the highest year-over-year, with 43% of the respondents saying that they will invest in the recovery of the eurozone. Net demand for Japan also rose 17% from 2013, as 33% of the hedge funds expressed interest in investing in Japan in 2014. On the other hand demand for Emerging Markets plummeted by 32% y-o-y, as net demand came up to 10% in this year’s survey as compared to 42% in 2013.
The survey also found that majority of the hedge funds expect Long/short equity to outperform all other strategies. 41% of the participants predicted L/S equity as the winner whereas 17% said that event-driven strategy will return the highest. Across regions hedge funds predicted that European equity markets (+9.1% return), Asia (+7.8%) and US equity (+7.4%) would outperform all others.