Investors have growing confidence in the asset class
Almost half of investors plan to maintain their allocation to hedge funds in 2018 and 27% are planning an increase, the highest share since December 2013.
Last year saw net inflows of $44.4 billion following the net outflows of 2016 which exceeded $110 billion.
Celebrating our industry successes in the wealth management industry
Analysis firm Preqin says there is something of a bounceback for hedge funds but that concern remains among investors that the market may have reached their peak (45% of those polled said so). A small share (5%) believe they may be in recession.
“Having faced an extended period of low investor confidence and net capital outflows, the hedge fund industry is now experiencing a renaissance among institutions,” explains Amy Bensted, Preqin’s head of hedge fund products. “2017 saw the asset class mark four quarters of net inflows, and at the start of 2018 the highest proportion of investors in five years are planning to increase their exposure over the year ahead.”
She added that expectation of an equity market correction may mean that investors believe the long bullish phase is ending, and that makes hedge funds a better bet for portfolio diversity and downside risk protection.
23% of investors plan to increase their allocations to systematic CTAs in 2018, the greatest proportion; and just 14% of investors will increase exposure to equity strategies hedge funds, while 16% intend to reduce their allocations in 2018.
Preqin is already seeing investor search activity for hedge funds rise markedly. The number of active fund searches has risen by a quarter in the past year to reach almost 1,000, and the average size of intended new investments has grown by 40%.
“This is very encouraging for hedge funds, but in such a crowded marketplace they will still need to work hard to attract and retain new investor capital – investor inflows have been concentrated among strong performers and defensive strategies such as macro funds and CTAs,” concludes Bensted.
