Global institutional investors are gung-ho about hedge funds going into the second half of 2014, Credit Suisse reported Thursday.
Ninety-seven percent of investors in Credit Suisse’s new survey said they planned to be highly active in making allocations to hedge funds during the remainder of this year.
This compared favorably with 85% who said they had already made allocations in the first half.
Investors’ favorable attitude appeared not to be dented by hedge funds’ shaky performance at the start of the year that had strengthened by the end of the first half, according to data released Wednesday by Preqin.
The Credit Suisse survey polled 285 global institutional investors representing $544 billion in hedge fund investment, including funds of funds, family offices, consultants, endowments and foundations, private banks, pension funds and insurance companies.
Some 57% of responses came from the Americas, while 34% came from Europe, the Middle East and Africa and 9% came from Asia/Pacific.
“The high percentage of respondents with strategic intention to actively allocate to hedge funds in the second half of this year could reflect a prolonged due diligence process, in response to high levels of market volatility back in March/April,” Robert Leonard, managing director and global head of capital services at Credit Suisse, said in a statement.
“Regardless, it does seem clear that institutional investors remain committed to hedge funds, as many see current equity and bond market valuations as high and are looking to further diversify their portfolios.”
Event-driven strategies were favored by 56% of investors, and equity long/short strategies, particularly those with a fundamental approach, by 41%.
This finding was consistent with the CS Annual Global Hedge Fund Investor Survey published in March, when investors also ranked those strategies at the top of their lists.
It also underlined the ongoing rotation of capital by investors from fixed income into equities, Credit Suisse said in a statement.
Twenty percent of respondents expressed an appetite for emerging market equities, up to 28% of investors in the Americas.
Global macrocontinued to lose favor with investors, after being one of the three most sought-after strategies at the beginning of 2013. The main interest came from EMEA-based investors.
Investors remained bearish on CTA/managed futures, with a negative net demand of 17% globally. Credit Suisse said this forecasted possible redemptions in the second half.
Return to Form
After a juddering start to the year, hedge fund investors had some reason to feel optimistic going into the second half.
Preqin, an alternative investments data provider, reported Wednesday that hedge funds finished the first half up 3.9%, compared with a 4.3% return in the same period a year earlier.
The report said good performance in May and June resulted in a second quarter gain of 2.5%, which was an improvement on the first quarter return of 1.3%—the hedge fund sector’s worst yearly start since 2008.
“Despite the relatively volatile start to the year, investors are continuing to allocate to hedge funds and a healthy number of new searches and mandates were issued during the second quarter,” Amy Bensted, Preqin’s head of hedge fund products, said in a statement.
“Hedge fund managers will be hoping to build on more encouraging performance in May and June in order to continue attracting inflows from the institutional community.”
Pointing to strong second quarter results posted by emerging markets and macro strategy funds, Bensted said “it will be interesting to see if managers of these vehicles can continue to outperform the likes of event-driven strategies and the North America market going forward.”
Preqin reported these other key facts:
- Event-driven strategies, which returned5.2% on average in the first half, were included in 20% of investor searches in Q2, second only to long/short equity
- Macro strategiesrecovered from a dismal Q1 performance to be the top performing strategy in Q2, with average returns of 2.8%
- CTAsrepresented just 1% of all fund launches in Q2, with the proportion of investor searches including these vehicles down from 16% in Q1 to 10% in Q2 following sustained poor performance
- Emerging markets rebounded after being the worst performing regional benchmark in Q1 to being the best performing region in Q2, with average returns of 4.3%
- 66% of all fund launches and 46% of all investor searches during Q2 were from firms based in North America, the leading regional benchmark this year to date, up 6%
- Europe was the worst performing regional benchmark in Q2, with funds focused on the region posting an average return of 0.5%.
- Funds of hedge funds saw an increased proportion of investor searches in Q2: 29% of searches, up from 21% in Q1, with 10% targeting managed account funds of hedge funds.