More than one third of investors expect to ramp up their allocations to hedge funds during the second half of 2021, while just over 50 per cent plan to maintain hedge fund allocations at current levels.
These were the headline findings from the latest bi-annual investment report from the Alternative Investment Management Association (AIMA) and investor research company HFM, entitled Investor Intentions H2 21.
Global macro strategies are expected to be the strongest beneficiaries of new investment flows, according to the report, with 32 per cent of investor respondents planning to increase allocations to this fund segment.
With global economic forecasts predicting a rise in inflation during 2021-22, investors are attracted to global macro strategies by their capacity to provide an inflationary hedge, the report says.
The survey finds that multi-strategy funds and long-short strategies are also likely to attract new subscriptions from investors, with 31 per cent of respondents planning higher allocations to these sectors.
In contrast, investors are less enthusiastic about quantitative and arbitrage or relative value strategies than they were 12 months previously.
One fifth of respondents said they expect to raise allocations to quant strategies, down from 31 per cent in H1 2020. Similarly, only 16 per cent of investor respondents plan to increase allocations to arbitrage or relative value funds, a fall from 29 per cent 12 months ago.
Reflecting on recent performance, more than 80 per cent investors said that they were satisfied with the performance of their hedge fund investments during the first half of 2021.
The AIMA and HFM report indicates that hedge funds had their strongest start to the year for more than a decade, and this has translated into US$57.8 billion in new capital inflows into the sector during H1, more than double the capital outflows witnessed for the equivalent period during 2020 (-US$23.4 billion).
The report observes, however, that some asset owners believe themselves to be over exposed to hedge funds and plan to revise their allocations downwards, while others are monitoring this situation and are retaining their allocations above target.
“The outlook for hedge funds remains strong, but less so than six months ago,” says the report. “Hedge funds returned 12 per cent in 2020, but our interviews suggest investors are waiting for robust two-to-three year performance before investing further.”
It finds that private wealth investors are most likely to raise their hedge fund allocation in H2. Although demand has dropped off slightly across this group, they are more likely to allocate money to hedge fund strategies than other alternative investments, with the exception of private equity.
“More sophisticated investors are also exploring other strategies within the alternative investment universe, with respondents highlighting increased appetite for private equity and credit funds, among other less liquid products,” says the report.
Investor respondents indicated that they are looking to private credit strategies as their most common response to counter low fixed income yields.
“Hedge funds posted the strongest first-half returns since 2009 and are on track to achieve the best Sharpe ratio since 2017,” says HFM chief data officer Elias Latsis. “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.”
The research, conducted during Q2 2021, was based on responses from 108 investors, with a total US$7.6 trillion in invested assets, and 123 hedge fund management companies.
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