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Hedge fund managers see opportunities in Europe in Q2

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Economic uncertainty following the UK vote to leave the EU has created potential opportunities for hedge fund managers and, as a result, many more funds have launched focused on the region, according to Preqin’s Q2 update on the hedge fund industry.

Europe-focused hedge funds saw a large increase in the proportion of overall fund launches, rising from 1 per cent of funds launched in Q1 to 16 per cent of those incepted in Q2.
 
At the same time, UCITS-compliant funds accounted for 18 per cent of overall fund inceptions through Q2, the highest quarterly proportion tracked by Preqin since the directive came into force.
 
Given that UCITS funds are a key way for non-European firms to raise capital from Europe-based investors, it is a further sign of the growing interest that industry participants are taking in the region, the report says.
 
While long/short equity hedge funds remain the most common hedge fund vehicles in terms of both investor searches and new fund launches, CTA funds are being increasingly sought-after by investors. The proportion of fund searches issued in Q2 that specified CTA or managed futures funds was 22 per cent, twice the proportion of fund searches issued in Q1. Despite this growing appetite among investors for the fund type, just 3 per cent of new hedge fund launches through the quarter were for CTA vehicles, less than the proportion seen for UCITS vehicles (18 per cent) or funds of hedge funds (7 per cent).
 
Equity strategies remained the most common approach among new funds launched in Q2, representing 53 per cent. The proportion of funds using a credit strategy rose from 10 per cent of Q1 launches to 18 per cent in Q2, while multi-strategy launches fell from 19 per cent to 6 per cent in the same period.
 
North America-based fund managers launched two-thirds of all new hedge funds in Q2. There was also an increase in the proportion of vehicles launched by Europe-based firms, representing 28 per cent of all launches, while Asia-Pacific-based managers represented 3 per cent of fund launches.
 
Fund of hedge fund managers issued the largest proportion (18 per cent) of fund searches in Q2, while wealth managers (17 per cent) and private sector pension funds (12 per cent) also accounted for notable proportions. After some high-profile redemptions, public pension funds comprised 6 per cent of fund searches in Q2.
 
Geographically, the proportion of fund searches has remained similar to Q1. Investors in the more developed markets of North America (40 per cent) and Europe (45 per cent) represented the majority of fund searches, while Asia-Pacific based investors comprised 7 per cent of searches.
 
“The run-up to and aftermath of the UK’s decision to leave the EU caused volatility across several markets within Europe and beyond. Hedge fund managers have seen increased opportunities to capitalise on this turbulence, and more Europe-focused hedge funds have been launched by managers both in and outside the region,” says Amy Bensted (pictured), head of hedge fund products at Preqin. “Although Europe-focused funds did not make the same gains as North America- or Asia-Pacific-focused vehicles in Q2, the ongoing volatility arising out of the uncertainty within Europe may provide opportunities for hedge funds focusing on the region to deliver some upside gains.

“More broadly, the appetite among investors for managed futures continues to grow, as investors seek products which can diversify their portfolio and add some downside protection over the coming months. Although these funds have seen some volatility in their returns over recent months, CTAs have performed more consistently in Q2 2016, and fund managers will be keen to show investors that they can offer uncorrelated returns and capital protection.”

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