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Investors Are Again Favoring Hedge Funds

06Jun
Green KeyFinancial Services

After seeing investors move their money out of hedge funds for nine consecutive quarters, Bloomberg says better times for the industry are right around the corner.

The prediction comes from a Bloomberg Mandates survey of 50 institutional allocators with more than $500 billion in assets. Half of them said they have or plan to increase their investment in hedge funds.

Reporting on the results of the survey, Boomberg.com said, “The industry emerged as the top pick among six major alternative asset classes, followed by private debt. About 60% of those surveyed said they were re-jiggering their investments as a result of the market turmoil.”

That’s good news for managers. Hedge funds have been struggling for several years just to stay even with market indices. In the first half of this year, Hedge Fund Research reports that on an asset-weighted basis, the industry lost 7.9%.

However, Evestment said average hedge fund returns in June were positive by 2.07%. That improved the average half-year return to a minus 3.37% for the industry as a whole. By comparison, the S&P 500 was off 3.08% at mid-year, according to Evestment data.

A Credit Suisse survey released at the end of June found that among the 160 institutional investors it surveyed, hedge funds were strongly favored among the 10 major asset classes. At 32%, net demand — the percentage of investors increasing allocations less the percentage decreasing – was the highest in the last five years.

Joseph Gasparro, Credit Suisse’s, head of Americas capital services content, suggested that the renewed enthusiasm for hedge funds is being driven by the market uncertainties as evidenced by the vacillation in the S&P.

“The incredible run-up in equities from late March to early June, the ‘easy money’ if you will, is likely not going to repeat,” Gasparro told Bloomberg. “The environment going forward will include more uncertainties, with investors relying on hedge funds to help navigate.”

In the Bloomberg Mandates survey, 60% of those surveyed said they were reallocating their investment mix because of the market turmoil. Bloomberg said long-short equity was the most popular hedge fund strategy. Funds-of-funds was the least popular.

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Amidst a volatile stock market that’s seen more ups and downs — more ups than downs in the last few weeks — than a roller coaster, more than a few banks did so well in the first quarter some have resumed hiring while their employees are beginning to anticipate year-end bonuses.

“As the pandemic persists, there are signs that banks are biting the bullet and going ahead with interviewing and onboarding remotely,” writes Sarah Butcher of eFinancialCareeers.

As might be expected, hiring is slower than it was before offices were closed and employees began working from home. Still, bank job postings in London ticked up in the last two weeks. In New York, which is weathering the worst of the pandemic, hiring is improving, but more slowly.

Financial recruiters in the UK and here agree that hiring dropped substantially in the first weeks of the pandemic, as the world’s financial markets gyrated wildly. However, they report that recently hedge funds and private equity have also begun to add staff. There’s an expectation that in the next several weeks, banks and asset managers will quicken the pace of hiring.

“It could turn out to be a busy second half of the year for recruitment,” an equities recruiter cautiously told eFinancialCareers.

Bankers themselves are even more optimistic. A survey by eFinancialCareers found two-thirds of finance professionals expect a year-end bonus, with 12% expecting it to be larger than last year’s. But that percentage increases to 24% among those working in credit sales and trading and to 20% in equities and 18% in macro trading.

There may be some hubris in that optimism, though among the leading global banks, most showed revenue gains in several key sectors. According to eFinancialCareers, the M&A sector took the biggest revenue hit, with half of the 10 posting revenues lower than in 2019. But nearly all banks showed significant revenue growth in equities and FICC trading and in their debt capital markets business.

Photo by Ferran Fusalba Roselló on Unsplash

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Financial Services
Jun 6, 2023

Alternatives Investors Plan to ‘Stay the Course’ This Year

Financial Services
Jun 6, 2023

Alternatives Investors Plan to ‘Stay the Course’ This Year

Despite market volatility and an uncertain economic outlook, investors are committed to their alternative asset programs, declares Preqin in its half year investment update.

The majority of investors in alternatives say they intend to stay the course this year, telling Preqin they are satisfied with the performance of their portfolio over the last year.

“Almost all investors intend to either maintain (60%) or increase (33%) allocations to private capital, highlighting their confidence in the market and knowledge that funds that have invested through downturns and recessions have historically provided the best returns,” says Preqin.

The only sector where investors were solidly disappointed is natural resources. There, 58% said performance had fallen short of their expectations.

Hedge fund investors were evenly split between those saying performance failed to meet their expectations and those who said the opposite. But when those who felt the asset class had exceeded expectations are included, hedge funds came out on the positive side.

Preqin conducted its survey of institutional investors in June, before hedge funds had a third consecutive positive month. July was another strong month for the asset class. Preqin’s All-Strategies Hedge Fund benchmark turned positive for 2020 and improved the annual return to 5.46%.

Yet, even before knowing this, 44% of hedge fund investors said they expected to invest more capital in the class in the next year. Among the six asset classes, only private debt had a higher percentage of investors (48%) expecting to increase their investment.

Preqin alternative investment 2020.jpg

Fewer, however, foresee much improvement in their portfolios over the next 12 months. Preqin says hedge fund investors are the most optimistic with only 2-in-5 survey respondents expecting improvement. Private debt investors were not far behind, with 34% saying they expected improvement.

“In absolute terms investors expect their private capital portfolios to perform worse over the next 12 months, a finding that is in line with the economic devastation arising from the pandemic,” Preqin says, adding, “any investment will be hard pressed to perform well.”

“On balance, investors expect COVID-19 to have a slightly negative effect on the performance of their alternatives portfolios in the long term.”

Still, as Preqin noted, 63% of investors do not plan to change their strategy because of COVID-19; 29% intend to invest more vs. 7% that will invest less.

“The economic fallout from COVID-19,” declare Preqin, “Has not diminished investors’ appetite for alternatives.”

Photo by Estée Janssens on Unsplash

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