The hedge fund outlook for 2022 is optimistic as investors seek to inject a further dose of capital into low beta strategies to protect against rising inflation.
That’s according to BNP Paribas’s 2022 Alternative Investment Survey: “The Hedge Fund Booster”, which canvassed the views of 224 allocators in December 2021, who invest or advise on USD1.2 trillion in hedge fund assets.
This represents approximately one-third of industry assets under management. The report provides insight to better understand investor sentiment with respect to performance and asset allocation plans for hedge funds and other alternative investments.
According to the survey, over half of investor respondents plan to grow their hedge fund portfolio in 2022, with the average respondent looking to increase hedge fund exposure by USD244 million at the expense of long only funds across equity, credit and fixed income.
Investors also expected to have met their return target for their hedge fund portfolio last year (average target of 8.32 per cent), with 62 per cent of respondents having already met this by end-November 2021, including 29 per cent of whom exceeded.
Three in every five respondents completed all due diligence virtually for previously unknown managers since the pandemic began, while three-quarters of survey participants made new allocations to previously known managers by completing some due diligence virtually.
Multi-strategy, meanwhile, is predicted to be the best performing strategy in 2022 after being the second best last year, falling short to event-driven.
Multi-strategy is also expected to see the second highest net inflows this year, following specialist equity long/short funds.
Quant equity and quant multi-strategy are expected to make a comeback with over one-in-ten investors looking to add to the space.
These strategies outperformed the overall hedge fund industry last year having underperformed the previous three years.
Asia Pacific and Europe are the most sought after regions for 2022, with investors looking to increase exposure to equity long/short funds in both these regions while also expressing interest in expanding their European credit exposure.
Some 45 per cent of investors have customised mandates with managers per scent up from 31 per cent two years ago, while investment consultants report customisation for over half of their hedge fund assets and expect this to grow to two-thirds within the next five years. For fund of funds this is currently about one-third and expected to grow to almost half of their allocations by 2027.
A total of 23 per cent of investor respondents invest in cryptocurrency strategies with 15 per cent expecting to increase their investment in 2022 and a further 29 per cent of investors who do not currently invest looking to do so.
Investors are still research-gathering and are focused on understanding alpha generation opportunities versus crypto beta, how best to position within their portfolio and the correct fee structure.
One-third of investor respondents’ state that they invest in ESG dedicated strategies with one-fifth of investors planning to increase this in 2022. A further 23 per cent of investors are considering an investment.
Diversity and inclusion remains an area of focus with 38 per cent of respondents reporting investing in women and minority owned managers, up from 21 per cent five years ago. 18 per cent of respondents expect to grow this in 2022 while 20 per cent of respondents are considering investing for the first time.
