Hedge funds regain the momentum

• Hedge Funds

After a challenging few years, hedge funds are once again delivering strong performance, and this is translating into inflows, with assets under management (AUM) soaring past the $4 trillion milestone.

On a roll

According to data from Hedge Fund Research, the average manager notched up returns of 7.6% in 2023, and this momentum has carried over into 2024, with the industry generating 8.75% in the four months leading up to February.

Investors are taking note, with Barclays Research showing that 25% of institutions plan to ramp up their hedge fund allocations this year.  The research continued that 85% of investors said they will make at least one hedge fund allocation in 2024, up from 80% the year before.

The appetite for credit is on the ascent, while interest in multi-strategy cools

In terms of strategies, credit is expected to attract a large proportion of these allocations.

Goldman Sachs analysis found 44% of investors intend to increase their hedge fund exposures via a credit strategy in 2024, with distressed credit and long/short credit being the most in demand sub-strategies.

While credit hedge funds are very much in favour, some believe that multi-strategy managers – which have been extraordinarily popular over the previous two years – may have reached their peak.

In 2022 when nearly all hedge funds were haemorrhaging capital, multi-strategy managers bucked the trend by registering positive flows, and this fundraising success continued into 2023.

Despite their strong and consistent long-term performance, returns in 2023 by multi-strategy hedge funds dipped a bit, leading to some investors losing interest.

The same Goldman Sachs study found that 16% of investors plan to allocate to multi-strategy hedge funds, down from 31% in 2023, while 7% of clients said they will redeem from the asset class, up from 4% in 2023.

Service providers are key to success

Irrespective of strategy, it is essential that hedge funds continue to build an ecosystem of market leading outsourced service providers, including their choice of prime brokers.  By engaging with Linear, a high-calibre and attentive boutique prime, managers will be in a good position to raise capital and grow their businesses, in this highly competitive (and volatile) market environment, while receiving best in class personal service.

Reach out to Joe Ford [email protected] to discuss your requirements.

Hedge Fund Research data

• Barclays  – Hedge Fund Outlook: Investor sentiment turns bullish for 2024
• Barclays  – Hedge Fund Outlook: Investor sentiment turns bullish for 2024
• Goldman Sachs – Hedge funds investing in credit are in demand
• Bloomberg – February 9, 2024 – Hedge funds face cash drought after multi-strategies lose luster