Event driven hedge funds are dramatically leading the pack in net demand in 2014, with 56 percent. Activist driven hedge funds are often categorized under this label. Equity long short hedge funds quickly followed in second place at 41 percent. Equity long short hedge funds are typically tilted in their exposure with a long preference to the tune of near 80 to 90 percent and thus perform well in rising stock markets.
Hedge funds demand for emerging market funds
Rounding out the hedge fund categories with the most demand is a group of equity-based strategies all near 20% net demand. This includes long short equity trading, emerging market equity funds, fundamental equity strategies and global macro. Of this group, demand for emerging market funds saw a strong rebound in demand, the report noted. Emerging market equities were particularly in vogue with American based investors, with a net demand of 28%. Asia on the other hand, had an equal number of investors looking to increase allocations as those looking to decrease allocations to the strategy. Global macro saw a “consistent decrease” in demand appetite. Global Macro strategies were particularly desired by investors in Europe, the Middle East and Africa and Asia Pacific investors, with a net demand of 24% in each region, while demand was much more muted in the Americas (7%).
While strategies that benefit from a rising stock market saw strong demand, the strategy uncorrelated to the positive performance of the stock market, best known for its positive performance during times of stock market crisis, was the only fund to see a drop in interest. Managed futures commodity trading strategies witnessed a 17 percent decline in net demand, the report noted.
Hedge funds allocations
In terms of providing allocations, Bank Prop Capital, Fund of Funds and Private banks are predicted to make the most allocations, while Pension Funds the least, the report noted. Apart from Insurance Companies and the other (including SWF, seeders) category, all other investor types intend to make fewer allocations on average in H2 compared to H1 2014.
The report predicted that investors will increase their allocation activity in the second half of the year, with 97% of investors that were surveyed intending to make allocations in H2 2014 compared to 85% in the first half of the year.