A new survey of alternative investment professionals has found that hedge fund and private equity executives alike predict moderate economic growth for the remainder of 2019.
Conducted on-site at EisnerAmper’s 4th Annual Alternative Investment Summit in New York, the survey polled 120 senior industry leaders from the hedge fund, private equity/venture capital (PE/VC), and institutional investor audience on their sentiment surrounding the industry and economy.
Executives were surveyed immediately following the conclusion of the Federal Open Markets Committee’s (FOMC) meeting on the afternoon of 19 June. Following the FOMC’s decision to leave interest rates unchanged, 45 per cent of survey respondents noted they anticipated significant or moderate economic growth for the remainder of the year, with just 24 per cent projecting an economic contraction by the close of 2019.
“The US has been in a 10-year bull market so it’s unsurprising that rates will remain steady at the moment,” says Nicholas Tsafos (pictured), Audit Partner in EisnerAmper’s Financial Services Practice. “At the same time, the FOMC is keeping an eye on possibly lowering rates in the coming months due to impacts from the trade war.”
Respondents were asked to name, from a shortlist, the industry that they felt had the greatest growth potential for 2019. Technology, which garnered 31 per cent of the total vote, led the pack, with cannabis (28 per cent) and healthcare/life sciences (20 per cent) also topping the list. The hedge fund respondents were particularly bullish about cannabis, with 37 per cent percent of this group naming it as the industry with the greatest growth potential.
Hedge fund executives are nervous about fluctuations in international trade policy and named this as their top challenge for the year ahead. Forty percent of hedge fund respondents noted shifting trade rules as a key concern, outpacing other challenges including pressure from SEC regulations (27 per cent) and difficulties in incorporating new technologies (18 per cent).
Indicative of this sentiment, hedge fund executives were more likely than their PE/VC counterparts to expect additional tariffs on Chinese goods. More than half (51 per cent) of hedge fund executives anticipate additional tariffs, versus just 28 per cent who do not expect new taxes on Chinese imports. Conversely, just one-third of PE/VC executives anticipate new tariffs versus nearly half (46 per cent) who oppose the prediction.
In terms of innovation, hedge funds continue to implement AI and machine learning tools, albeit at a slow pace. Just over one-fifth of executives note that their hedge fund utilises these tools to make investments or trades. Environmental, social and corporate governance (ESG) strategies are also hit-or-miss, with just 28 per cent of respondents reporting ESG portfolios within their hedge funds. Although ESG may only represent a small portion of portfolios today, the sector has witnessed immense growth in the last few years. According to the US/SIF Foundation, assets in sustainable, responsible and impact investment strategies rose to USD12 trillion in 2018, up from USD8.72 trillion in 2016.
“Many corporate ventures and financial firms are looking to become more socially and environmentally responsible even in a time of differing perspectives with regard to environmental policies,” Tsafos says.
Buoyed by their positive outlook for the second half of the year, the strong majority of PE/VC leaders see a positive deal landscape ahead. Thirty percent of respondents predict M&A activity to increase over the next 12 months, with an additional 52 per cent anticipating a continuation of the current level of deal flow over the next year.
Hiring in the industry is also expected to continue. More than three-fourths (77 per cent) of respondents reported plans to hire in their investment, operations, or investor relations teams.
“The financial world often struggles to attract Millennials, and now Gen-Z, given its ageing reputation and the number of disruptive startups competing for the best talent,” says Christopher Loiacono, Managing Partner of Services at EisnerAmper. “Today, people are looking for an employer that will not only provide them with strong career opportunities but who will pay it forward within their community and industry. It’s exciting to see so many firms focus on investing in new recruitment programs to push the industry forward.”
Featuring a keynote from former MLB star Alex Rodriguez and speakers from Angelo Gordon, Edison Partners, Blackstone Group, Man Group, Millennium Management and other leading alternatives firms, EisnerAmper’s 4th Annual Alternative Investment Summit took place on June 19, 2019 at the Museum of Modern Art in New York City. EisnerAmper’s survey incorporated feedback from 120 event attendees, which consisted of CFOs, COOs, CIOs, CAOs, controllers, portfolio managers and operations specialists from across the alternatives industry.
