Hedge fund investors split down the middle on 2020 performance, says new investor poll

Divergence

Hedge fund investors are evenly split over how satisfied they are with the industry’s performance this year, according to a new industry poll by investment consultant bfinance.

bfinance’s mid-year asset owner survey, ‘Managing through Uncertainty’, quizzed a range of investors – including pension funds, insurers, endowments, family offices and sovereign wealth funds – on the first-half performance of various investment products, such as hedge funds, private equity, real estate, and risk premia.

Altogether, the 368 senior investors surveyed represented assets of some USD11 trillion.

Overall, more than four-fifths (82 per cent) of survey participants expressed satisfaction with how their portfolios performed during the eventful first half of 2020, when global stock markets plummeted as the coronavirus outbreak worsened.

But within many investment strategies, sentiment is far less clear cut, with hedge funds one of several “notable areas of concern”, the study found.

Close to half – 48 per cent – of hedge fund investors are dissatisfied with their performance during the first six months of the year.

Specifically, 17 per cent said they were “very dissatisfied” and 31 per cent were “dissatisfied” with hedge funds’ performance. On the flipside, 35 per cent are “satisfied”, and 8 per cent “very satisfied”. The remaining 8 per cent do not yet know how they feel about this year’s hedge fund performance.

“Within the hedge fund sector, we have seen wide dispersion of manager returns both within and between strategies as a result of Covid-19 disruption,” Toby Goodworth, head of liquid markets at bfinance, said in the report.

“The sheer speed of market dislocation in March meant all but the fastest trading-oriented strategies were effectively passengers through the turbulence. A number of high-profile names produced unexpected losses and failed to demonstrate the expected diversification behaviour.”

Geographically, North American investors expressed the most satisfaction with hedge funds, with 40 per cent “quite satisfied”, compared to 30 per cent of “quite satisfied” European hedge fund investors. Almost as many North American investors were “quite unsatisfied” with hedge funds, though at 38 per cent. Only 24 per cent of European investors were “quite unsatisfied” with their hedge funds’ performance.

Recent industry data from Hedge Fund Research shows that while a majority of hedge funds tumbled sharply during Q1 following March’s market mayhem, strategies of all stripes soared in Q2.

Elsewhere, 53 per cent of investors in active emerging market debt strategies are dissatisfied with performance. Close to two-thirds (64 per cent) of alternative risk premia investors are also unhappy with H1 returns. In contrast, 52 per cent of real estate investors are pleased with performance this year; 61 per cent of private equity investors were satisfied with H1 performance, and 71 per cent of private credit allocators expressed satisfaction.

The report found that, overall, only 24 per cent plan to change strategic asset allocations this year, while 35 per cent are altering their risk management processes.

Among the other key findings: close to a third of investors have already invested in distressed or opportunistic strategies that seek to benefit from the Covid-19, while a further 22 per cent who have not yet done so are interested in pursuing such opportunities in the coming months.