Hedge Funds Are a Top Investor Preference in Second Half: Credit Suisse

Global investors’ appetite for hedge funds is on the upswing, according to Credit Suisse’s midyear sentiment survey, released Tuesday.

Twenty-eight percent of respondents listed hedge funds as their preferred asset allocation preference for the second half, one percentage point behind private equity and six points ahead of venture capital.

This represents a big turnaround from recent years. In 2016, investors’ preference for hedge funds was negative, then jumped to 12% in 2017. This year, 93% of investors told Credit Suisse they intended to maintain or increase their allocation.

The survey covered 279 global institutional investors, representing more than $1 trillion in hedge fund investments. Respondents included pension funds, endowments, foundations, consultants, private banks, family offices and funds of hedge funds, with 57% of responses coming from the Americas, 31% from Europe/Middle East/Africa and 12% from Asia/Pacific.

Hedge Fund Research recently reported that industry capital in the second quarter totaled $3.2 trillion, setting a new record for the eighth consecutive quarter.

“Investors continue to have increased appetite for hedge funds driven by a variety of factors, including more aligned fees and terms as well as the broader use of customized solutions and nontraditional vehicles, especially managed accounts and co-investments,” Joseph Gasparro, head of strategic advisory and content for Credit Suisse Capital Services, said in a statement.

The survey found that 76% of investors were focused on fees and terms, and 51% on fund expenses.

Credit Suisse said now that the ongoing dialogue between investors and managers includes more emphasis on pass-through fees, quantifying the total cost of running a hedge fund and supporting it with benchmarking could help create an optimal alignment of interests.