Investors Plan To Increase Their Hedge Fund Allocation

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Over A Third Of Investors Plan To Increase Their Hedge Fund Allocation In H2 2021, HFM And AIMA Find

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Q2 2021 hedge fund letters, conferences and more

  • More than 80% of investors were satisfied with hedge fund performance in H1 2021.
  • Q2 2021 study of investors with $7.6 trillion total assets finds continued interest in hedge funds.

Investors To Increase Hedge Fund Allocation In H2

Investor Intentions H2 2021, the latest bi-annual investor focused report by business intelligence provider HFM, and the Alternative Investment Management Association (AIMA) – the global representative of the alternative investment management industry – has found that more than 80% of investors were satisfied with the performance from their hedge fund investments in the first six months of 2021. Central to this result is the continued gains achieved by the industry, with hedge funds reporting their strongest first half to the year since 2009. Moreover, as this report demonstrates, the sustained performance by hedge funds has been rewarded, with 2021 capital inflows up to May (+$57.8 billion) eclipsing outflows seen in 2020 (-$23.4 billion) by more than two-fold.

Investor plans for the second half of the year remain encouraging with more than one-third of all respondents planning to increase their allocation. The percentage of investors planning to increase their allocation to hedge funds dipped marginally compared to figures highlighted in the previous Investor Intentions report. This can be partly attributed to some investors finding themselves over-allocated to hedge funds and adjusting accordingly, although there are also some examples of investors being pragmatic in their weightings and remaining above target. More sophisticated investors are also exploring other strategies within the alternative investment universe, with respondents highlighting an increased appetite for private equity and credit funds, among other less liquid products.

The research, conducted in Q2 2021, surveyed 108 investors (with US$7.6 trillion in total investor assets) and senior IR and marketing professionals from 128 hedge fund managers to discover the changes allocators plan to their portfolios and how hedge fund managers plan to raise assets in H2 2021:

  • A third of investors plan to increase their allocation to hedge funds, while a further 51% plan to maintain their present allocation.
  • Beyond reaching target allocation, the existence of exciting new opportunities within the asset class is the principal reason investors plan on increasing their hedge fund allocation (38%), followed by strong return expectations (31%)
  • Global macro strategies are likely to see the strongest inflows in H2 (32% of investors planning an increase), with investors particularly interested in the strategy’s ability to hedge against rising inflation. Long/short equity and multi-strategy funds can also expect significant investor interest, with 31% planning increases.
  • Hedge fund managers are moving away from pandemic stand-ins as new sources of leads, notably referrals from existing clients, and instead are more likely to lean on prime broker cap intro teams to generate new business opportunities in the second half of the year.
  • Interest in allocation to private credit, first highlighted in the previous Investor Intentions report, was this time cited by investors as the most popular strategy to counter low fixed income yields

Worries About A Snapback In Restrictions

Concerning hedge fund managers’ top investor targets, private wealth investors, such as family offices and high net worth individuals feature even more prominently than they did when HFM and AIMA last surveyed managers six months ago.

Despite increasing freedom to travel over the past couple of months, both managers and investors remain wary about a snapback in restrictions, with both groups planning relatively few new meetings in the second half. Managers and investors have, however, found ways around impediments to face-to-face meetings, with nearly two thirds (63%) of managers surveyed having completed virtual operational due diligence with a new investor in the preceding six months.

HFM’s Chief Data Officer Elias Latsis said: “Hedge fund managers posted the strongest first-half returns since 2009 during H1 and are on track to achieve the best Sharpe ratio since 2017. While investor satisfaction with performance remains high, the slight pullback witnessed since our last survey shows the bar for success has been set higher by managers’ outperformance during Q2 2020.

HFM’s Head of Investor Research James Sivyer said: “During the pandemic managers have had to think creatively about ways of reaching new investors. To date, this has meant a heavy reliance on referrals from existing clients. However, our survey results indicate managers may have started to exhaust this particular source and are instead looking to prime broker capital introduction teams to generate new leads.”

Tom Kehoe, Managing Director and Global Head of Research and Communications at AIMA added, “The findings of this report underscore the experience of AIMA’s members and our research, including the quarterly Hedge Fund Confidence Index, which emphasises that investors value hedge funds’ ability to protect against downside risk and provide steady performance in a variety of market conditions. The vast majority of investors unsurprisingly remain satisfied with their hedge funds performance and are considering their future allocation plans accordingly. If the industry’s performance in H1 can be sustained for the rest of the year, it will have generated its highest returns for investors in over a decade.”

About AIMA

The Alternative Investment Management Association (AIMA) is the global representative of the alternative investment industry, with around 2,000 corporate members in over 60 countries. AIMA’s fund manager members collectively manage more than $2 trillion in hedge fund and private credit assets. AIMA draws upon the expertise and diversity of its membership to provide leadership in industry initiatives such as advocacy, policy and regulatory engagement, educational programmes and sound practice guides. AIMA works to raise media and public awareness of the value of the industry. AIMA is committed to developing skills and education standards and is a co-founder of the Chartered Alternative Investment Analyst designation (CAIA) – the first and only specialised educational standard for alternative investment specialists. AIMA is governed by its Council (Board of Directors).

About HFM

HFM provides hedge fund professionals with an unparalleled blend of business essential data, exclusive industry intel and market-leading events. Combining 22 years of industry heritage with a cutting-edge platform, to create true business intelligence; the intelligence needed to raise assets, allocate funds or source new business opportunities. Insights are the research and analysis service from Pageant Media, sitting within the company’s hedge fund intelligence network, HFM. The division produces research reports and analytical articles on a variety of topics in the global hedge fund industry, including business operations, investor relations, technology and regulation. Leveraging Pageant’s wealth of data and news sources, and with access to the HFM network’s vast membership, Insights is uniquely positioned, offering exclusive surveys and expert commentary.