JP Morgan Asset Management forecasts “rich environment” for hedge funds as ‘megatrends’ take centre-stage


The fallout from the coronavirus pandemic is set to unlock global “megatrends” this year, including consumer and corporate technology, healthcare, and sustainability themes – and hedge fund investors can expect a “rich environment for growth”, a major new study by JP Morgan Asset Management suggests.

The firm’s 2021 Global Alternative Outlook also predicts a rebound in equity market fundamentals as economies recover from the Covid crisis, as well as continued momentum in special purpose acquisition vehicles (SPACs), which have seen a surge in activity among several high-profile, brand name hedge funds over the past year.

Hedge fund managers can expect “generally elevated valuations”, supported by a positive macro backdrop comprising ongoing fiscal stimulus, above-trend growth, and continued low interest rates.

JPMAM’s annual deep-dive study outlines a 12 to 18-month perspective on a range of alternative assets, including hedge funds, private equity, real estate, and private credit, and explores the key investment themes and ideas from CEOs, CIOs and strategists from the firm’s USD150 billion alternatives platform.

The authors of the report’s hedge fund chapter – Jamie Kramer, head of the Alternatives Solutions Group, Yazann Romahi, chief investment officer, quantitative solutions, Shrenick Shah, head of macro strategies, and Paul Zummo, chief investment officer, JP Morgan Alternative Asset Management – believe hedge funds will prove a “quite valuable portfolio complement” for investors this year.

Widely-anticipated performance dispersion cutting through sectors, strategies, stocks and hedge fund managers will help allow hedge funds to complement traditional stock and bond holdings at a time of ultra-low rates.

“We expect a rich environment for growth,” they observed. “We’ll be investing in global megatrends - sustainability, emerging market consumers and technology, including health care tech, such as telemedicine.

“We believe consumer and corporate technology adoption is at an inflection point, creating opportunities in cloud computing, software, cybersecurity, payments, semiconductors and biotech.”

“Hedge funds’ volatility profiles are in some cases similar to fixed income portfolios’ yet have the potential, we believe, for far more upside.”

The report also gauged the potential rebound of value and quality stocks during the expected economic recovery, as fundamentals return to the spotlight, and also weighed in on the boom in SPACs, which has seen volumes soar from USD13.6 billion in 59 SPACs in 2019 to USD82.8 billion raised by 248 SPACs in 2020, with high-profile managers such as Bill Ackman’s Pershing Square leading the charge.

“From an investment standpoint, SPACs remain quite inefficient, providing strong investment opportunities for us. Strategies include participation in SPAC sponsor shares, initial unit formation, late-stage SPACs and volatility trading.”