Investor appetite for hedge funds remains strong, according to Credit Suisse’s mid-year survey of hedge fund investor sentiment, entitled ‘Back In The Saddle’, which polled over 275 institutional investors globally, representing USD1.04 trillion in hedge fund investments.
Hedge Funds witnessed the largest positive swing in net demand among the different asset classes surveyed, and are on par as the top investment strategy of allocators going into the second half of the year.
Investors also continue to show increasing preference for employing alternative investment vehicles in addition to commingled accounts. Most favoured structures include Separately Managed Accounts/Funds of One, Co-Investments, Private Credit, and Longer Lock products.
Allocators indicated more attention should be given to pass through fees. Approximately 25 per cent of investors moved certain fund expenses to the manager over the past two years.
Quantifying alignment of interests sees & terms (76 per cent) and fund expenses (51 per cent) are the topics investors are most focused on. With the ongoing dialogue between investors and managers now including more emphasis on pass through fees, quantifying the total cost of running a hedge fund and supporting it with benchmarking could help create an optimal alignment of interests.
Joseph Gasparro, who leads Strategic Advisory and Content for Credit Suisse Capital Services, says: “Investors continue to have increased appetite for hedge funds driven by a variety of factors, including more aligned fees and terms as well as the broader use of customised solutions and non-traditional vehicles, especially Managed Accounts and Co-Investments.”
Jaynita Sodhi, Co-Head of US Credit Suisse Capital Services, says: “We saw a large upswing in demand for Discretionary Macro among investors surveyed, as volatility returned to the markets. As we witnessed going into 2018, equities remain top of mind for allocators. Also notable is the inclusion of ESG as a top strategy preference.”
Discretionary Macro had the largest positive demand swing from year-end 2017 and was specified by investors as the most preferred strategy for the second half of 2018. Equities also remain in favour (5 of the top 10 strategies) with interest for a variety of approaches, including Equity Long/Short Healthcare and both Fundamental & Quantitative Market Neutral.
Environmental, Social and Governance made its top 10 strategy preference debut as allocator interest grows. 25 per cent of investors currently have an allocation to the strategy.
The broader Asia-Pacific region and emerging markets are again most in demand. Although sentiment has decreased since the start of the year given the emergence of trade tensions, investors look at these regions as a longer-term opportunity. North America witnessed the largest positive demand swing as the US economy and stock market continue their upward momentum in 2018.
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