Institutional allocators are increasingly optimistic about the future of hedge funds, with senior investment professionals at Kepler Partners’ inaugural CIO Perspectives event all painting a positive picture of the hedge fund landscape

Executives from UBS, UBP Alternative Investment Solutions, and Lombard Odier highlighted diversification, enhanced return potential, and robust portfolio customisation as key attractions.

Panelists at the event, which brought top industry allocators together to discuss evolving trends in the hedge fund space, noted that over the past decade, the asset class has diversified significantly, offering a rich array of sub-strategies and manager approaches that meet varied risk and return objectives.

Farès Jaafar, CFA, Head of Hedge Funds at Bank Lombard Odier & Cie SA, highlighted the broad range of strategies available within hedge funds, explaining that these strategies allow investors to tailor portfolios to specific goals by targeting uncorrelated sources of alpha and achieving both return diversification and enhancement. “We look for strategies that offer convex returns, diversification benefits, and enhanced risk-adjusted returns with the compounding effect of alpha over time,” he said, also noting growing market optimism, driven by favourable macro trends and increased market dispersion, which is encouraging asset managers to boost their allocations.

Anthony Murphy, CFA, Managing Director at UBP Alternative Investment Solutions, emphasised the dual role of hedge funds in providing both diversification and enhanced returns, pointing out that the current environment, marked by volatility and divergent fiscal and monetary policies, creates strong opportunities for hedge fund strategies. “There has been a significant uptick in investor interest in hedge funds over the past 12 to 18 months, as clients seek to diversify away from traditional market returns and cushion against potential volatility shocks,” he said.

Karim Cherif, Head of Alternative Investments at UBS Global Wealth Management CIO, stressed that successful hedge fund investing hinges on meticulous manager selection, highlighting that understanding managers’ strategies and their consistency across market cycles is crucial for achieving desired outcomes. He also observed that post-pandemic, investors have increasingly recognised hedge funds as valuable complements to traditional assets like bonds and equities.