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Credit hedge funds gaining popularity with institutional investors

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Credit as a hedge fund strategy has been the fastest growing strategy in terms of institutional investor mandates over 2009, according to research by Preqin.

Nearly twice as many institutional investors have stated credit as a preference this year as compared to October 2008.

Funds of hedge funds are a large source of capital for the credit hedge fund manager. With their ability to shift quickly into new strategies, funds of funds were the first group of investors to begin allocating to this type of fund.

Many multi-manager firms have launched specific credit fund of funds over 2009, including the Paris-based Olympia Capital Management.

In addition, many endowments have also begun to invest in credit strategies this year in order to generate returns from this sector of the market, for example Georgetown University began a search for credit managers in the third quarter of 2009.

Credit is still a relatively niche choice of hedge fund for the institutional investor, however it has rapidly grown in popularity amongst investors through 2009 as a result of the opportunities being created in this space following the market crisis.

North America and Europe are the largest sources of capital for credit funds in terms of sheer volume of investors. However, proportionally credit funds are more popular with Asian investors with 20 per cent of all institutional investors in Asia stating credit as a specific strategic preference for 2009 and 2010.

There have many credit opportunities created in Asia off the back of the global financial meltdown and numerous Asian credit hedge funds have been formed as a result. Institutions in this region have sought to capitalise on opportunities in their local markets by making investments specifically in credit hedge funds.

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