AIMA sentiment index: Hedge funds remain upbeat heading into final quarter

hedge funds

Hedge funds’ confidence continues to rise, with managers across the UK, Europe and Asia all bullish on their business prospects heading into the final quarter of the year, a key industry sentiment index shows.

The latest Hedge Fund Confidence Index (HFCI) – published jointly by the Alternative Investment Management Association, Simmons & Simmons and Seward & Kissel – found almost all hedge funds surveyed expressed confidence in the economic prospects for their businesses over the next 12 months.

Sentiment among larger firms, as well as UK and EMEA-based managers, showed the biggest rise during Q3.

The quarterly AIMA Hedge Fund Confidence Index (HFCI) quizzes around 300 hedge fund firms – collectively managing some USD1.6 trillion in assets - on their capital-raising, revenue-generation and cost-managing prospects, along with the overall performance outlook of their funds, for the coming year. They then score their confidence levels on a scale of +50 (the highest level of economic confidence) to -50 (the lowest), with 0 indicating a neutral level of confidence.

The latest quarterly report for the period between July and September shows hedge funds registered an average confidence measure of 20.4 during Q3, up from 19.51 the previous quarter, and 18.4 in Q1 this year.

Overall, hedge funds on average have generated double-digit returns so far in 2021, the report noted, with industry sentiment buoyed by sustained positive net inflows during the first half of this year. 

Almost (99 per cent) of all hedge funds that participated in the index are confident in the economic prospects of their business over the coming 12 months, the study noted.

The findings show larger managers in particular are the most bullish for the year ahead: hedge funds managing more than USD1billion in assets reported a confidence score of 21.6 overall, while those with assets under USD1 billion gave a score of 18.6.

Geographically, meanwhile, managers in the UK, EMEA and Asia-Pacific regions are all growing in confidence, posting higher confidence levels in Q3 compared to Q2.  

UK hedge fund managers’ confidence rose from an average of 17 in Q2 2021 to 21.3 in Q3. Similarly, EMEA hedge funds (which includes UK managers) rose from 17.7 to 20.8 over the same period, while APAC managers’ confidence grew from 18.2 to 19.5.

“The marked increase in confidence over the last year amongst UK hedge fund managers is great to see – and is reflected in the work we have been doing for our UK headquartered clients,” said Devarshi Saksena, partner Simmons & Simmons. “Our established clients have been very active creating new products across the full range of strategies and the new start-up manager market continues to see strong levels of activity and growth.”

On the flipside, North America-based hedge funds’ confidence slipped 2 points from 22.5 in Q2 to 20.4 in Q3. AIMA suggested the sentiment dip is a temporary setback, stemming from the spread of the Covid-19 Delta variant, with travel expected to recover strongly over the next quarter.

“There have been new challenges that have arisen from Covid-19 variants and the political climate in the US and thus it’s slightly unsurprising that North America based managers are less optimistic about the next twelve months than they were last quarter; however, North America managers are overall still optimistic,” added Steve Nadel, partner at Seward & Kissel.

Tom Kehoe, global head of research and communications at AIMA, said: “Prospects for the hedge fund industry are as strong as they have been in many years, underpinned by solid industry performance and renewed investor interest. Despite several industry headwinds including Covid-19 variants, increased regulatory scrutiny as well as operational challenges for the industry to consider, hedge funds globally remain cautiously optimistic regarding the economic prospects of their business over the coming 12 months.”

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Hugh Leask
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