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Investors positive about hedge fund growth in 2015, says Credit Suisse survey

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Sentiment for hedge fund industry growth is positive, with investors forecasting a 14.4% increase in hedge fund industry AuM during 2015, according to the latest Credit Suisse Annual Hedge Fund Investor Survey.

This represents an increase over last year’s forecast, which investors estimated at 12.0%.  If accurate, this forecast growth would push industry assets over USD3 trillion for the first time in its history.

According to the survey – On the Path to Broader Horizons – which was produced by Credit Suisse’s Hedge Fund Capital Services Group and polled the views of 378 institutional investors, representing USD1.13 trillion of hedge fund investments, Global Macro is the most in demand strategy for 2015, with 32% net demand. This follows several years of relative underperformance compared to some other strategies. Investors appear to be considering a range of macro related factors, such as central bank divergence, Greek debt issues and regional growth uncertainties. 

Other strategies favoured for potential allocations in 2015 are Event–Driven (No2) with 26% net demand (despite a significant decrease from last year when it was ranked No1) and CTA/Managed Futures (No3) funds with 24% net demand (which ranked last in the 2014  survey). 
Additionally, Commodities and Natural Resources-related funds have seen a significant bounce in interest from last year, as investors evaluate the opportunities being generated from the current dislocations taking place in world energy markets.    
When asked about key factors for selecting hedge funds, investors overwhelmingly referenced net returns, followed by low correlations and reduced volatility as the most important data points in their evaluation process.  Surprisingly, almost 70% of respondents chose not to include fees as one of the top three factors in selecting a new fund. This may indicate that institutions are reasonably comfortable with current industry fee structures.

In terms of regional preferences, Developed Europe (29% net demand) has seen a decrease in interest levels from last year, however overall appetite remains strong.  Close behind are Global strategies and Asia Pacific (at 28% net demand each).  North America is also rated highly as a region for focus, with 22% in net demand. 

Over half (53%) of investors said that they are most likely to allocate to those funds with AuM of USD250 million to USD1 billion this year.  This appears to be an effort by investors to invest with funds that are not yet capacity constrained and may also have the flexibility to take advantage of smaller market opportunities.

Investor appetite for UCITS remains strong, with 30% of investors either increasing or maintaining allocations to the space. Growth in demand continues to come from retail intermediaries in EMEA region.

Robert Leonard, Managing Director and Global Head of Capital Services at Credit Suisse. says: “Institutional investors appear more optimistic regarding their plans to allocate to hedge funds than they were this time last year, primarily because of their ability to generate uncorrelated returns and lower volatility in a broader investment portfolio.
“The survey also provides valuable insight as to where investors are seeing opportunities in the coming year.  As market volatility re-emerges, investors have once again begun to look at strategies such as Global Macro and CTA’s as well as Energy/Commodities.  These are in addition to other previously favoured strategies, such as Event-Driven and Equity Long/Short.“   

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