Investors view hedge funds more favourable despite Covid-19

56% of managers and investors view hedge funds more favourably as key asset class despite Covid-19

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Q2 2020 hedge fund letters, conferences and more

From the popularity of asset classes and hedge fund strategies to the ideal regional market for investors, how have perceptions on capital raising in a crisis changed for hedge fund managers and investors?

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As the Covid-19 pandemic progresses, HFM takes stock of the last six months and looks ahead by asking 54 hedge fund managers and 43 investors about asset raising during these times. Please refer to the following report showcasing key highlights on Covid-19's effects on hedge fund capital raising.

View Of Asset Classes Due To COVID-19

Appreciation for hedge funds is rising faster than for other asset classes:

Approximately three in five investors view hedge funds more favourably than before the pandemic. The downside protection offered by hedge funds in March has caught allocators' eye with almost 60% now viewing them more favourably; more than any other asset class. IRs will have hoped for more recognition from institutions. But despite the relatively low favourability score, the group still ranked hedge funds joint top with private debt (36%). After years spent playing second fiddle to private market specialists, hedge fund IRs can demonstrate how a more liquid brand of alpha is well suited to today's market.

Ex. 1.1: Change in investor views of key asset classes due to Covid-19

*Excludes FoHFs (Source: HFM Insights)

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Ex. 1.2: Change in investor views of hedge funds due to Covid-19

*Excludes FoHFs (Source: HFM Insights)

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View Of Hedge Fund Strategies Due To COVID-19

Half of investors view l/s equity more favourably than before the pandemic:

Six of the eight top-level hedge fund strategies listed here are viewed more favourably than less since the pandemic started. Perhaps surprisingly, l/s equity tops the list. Appreciation for discretionary l/s equity is being led by smaller private investors and intermediaries, such as FoFs and asset managers. Institutions are less impressed. Despite strong recent performance from some CTAs, investors are clearly sceptical of a computer's ability to navigate a crisis. IRs should highlight the human touch.

Ex.2.1: Change in investor views of key HF strategies due to Covid-19

*Includes FoHFs (Source: HFM Insights)

hedge fund covid 19

Ex. 2.2: Change in investor views of l/s equity due to Covid-19

*Includes FoHFs (Source: HFM Insights)

hedge fund covid 19

Fund Reopenings Due To COVID-19

One in three $1bn+ managers reopened a product during the pandemic:

Most of the billion-dollar club managers that reopened a fund did so with an eye on attracting new clients. Those large managers that have reopened did so with the net cast wide, most of them have been seeking out new money, and almost half are still open to new money. Despite the opportunities in equity markets, arbitrage relative value were most likely among top-level strategies to reopen a product this year, not equity specialists. 2020 has seen many reports of large hedge fund firms reopening funds, and our data support this. Mid-sized relative value managers should be encouraged and wary.

Ex. 3.1: Proportion of 1bn+ AuM hedge fund firms that reopened a product in 2020

(Source: HFM Insights)

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Ex. 3.2: Proportion of $1bn+ AuM hedge fund firms that reopened - by strategy

Only strategies with at least five $1bn+ examples in our sample included (Source: HFM Insights)

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COVID-19 Impact On Hedge Fund Investor Interest

US domestic market still viewed as best source of leads despite pandemic:

73% of hedge fund managers surveyed plan to continue targeting investors both near and far in Q4. Those firms that have chosen to take a narrower approach will hunker down and focus their efforts on investors in their home market. Unsurprisingly, North American managers are most likely to focus on their domestic market. The US remains the richest seam of capital, and is also one of the first leading economies to suffer a second wave of Covid-19 cases. IRs' continued focus on both local and overseas markets is heartening to see. The challenge for managers will be to maintain this momentum as we move into 2021 and the leads won before the pandemic comes to fruition and/or fizzles out.

Ex. 4: The focus of hedge fund managers' marketing efforts in Q4 2020

(Source: HFM Insights)

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