Institutional Investors Boosting Hedge Fund Allocations, Survey Finds

Institutional investors preparing for a continued economic downturn in the second half of the year are turning to a long-disparaged asset class for safe haven.

About half of asset allocators surveyed by Bloomberg Mandates said they have increased investments in hedge funds or are planning to this year. The June report surveyed 50 institutional investors, mostly single or multi-family offices, from around the globe.

Part of the growing interest in the asset class is more market volatility. While the stock market enjoyed a record 20% surge in the second quarter, investors are leery that an uptick in coronavirus cases, continued social unrest, as well as the upcoming US elections, may lead to a downturn.

In fact, a majority of investors are certain of it. Ninety-four percent of the 50 investors surveyed by Bloomberg Mandates said they are sure the global economy will contract by the end of the year. About half believe it could shrink by 10% to 20%.

For more stories like this, sign up for the CIO Alert newsletter. 

Those investors are now piling into an asset class that has been on the decline for years. High fees and low returns during the market rally of the last decade had many investors turning their backs on the sector. More than 4,000 hedge funds closed their doors in the past five years alone.

But the alternative asset class can help diversify investors’ portfolios. Hedge funds were the top choice among institutional investors, with private debt funds trailing behind, the report said. About 40% of investors said allocations were already in progress, while 20% said they’ll invest in hedge funds over the next six months.

Hedge managers are taking the opportunity to pitch new funds to investors or are reopening previously closed vehicles. The report also found that hedge funds favored long-short equity and distressed debt strategies.

The findings also square with research released this week from Hedge Fund Research (HFR), which found that capital invested into hedge funds surged in the second quarter of 2020, “creating an opportunity-rich environment for long-short hedge fund performance generation” for the rest of the year, according to HFR President Kenneth Heinz.

Capital invested in hedge funds increased by $220 billion to $3.2 trillion, the strongest quarterly increase since 2009, the report found. Outflows also slowed from the first quarter.

More Hedge Funds Close in 2019 than Opened

Too Much Leverage, Too Much Risk Are Weighing Down Hedge Funds

Tags: business, Coronavirus, COVID-19, Funding, hedge, Hedge Fund, Investment, Investment Fund, Management

Two Grand Rapids, Michigan, pension funds are suing chemical giant Bayer over alleged misrepresentations and omissions regarding its $63 billion acquisition of agrochemical company Monsanto, which is facing “thousands of personal injury lawsuits” over claims that its Roundup weed killer causes cancer.

The lawsuit alleges that Bayer downplayed and misled investors about the “significant liability risk” of the lawsuits against Monsanto. According to the complaint, Bayer made false and misleading statements to investors during the class period, which spans from May 23, 2016, to March 19, 2019, as it described the acquisition as “a compelling transaction for shareholders” that “will translate into attractive financial benefits” for Bayer and its shareholders.

“When Bayer finally consummated the acquisition, not only had thousands of personal injury lawsuits related to Roundup exposure been filed against Monsanto,” stated the complaint, “but plaintiffs in several of the first Roundup cancer cases had survived motions to dismiss, obtained damaging discovery, and fended off challenges to expert testimony and pretrial motions.”

The lawsuit cites an August 2018 California state court case in which the jury in the first Roundup cancer case to proceed to trial unanimously found that Roundup was a “substantial factor” in causing the plaintiff to develop non-Hodgkin lymphoma. It also said the jury found that Monsanto acted with “malice or oppression” and should be punished for its conduct, and it ordered Monsanto to pay $39 million in compensatory damages and $250 million in punitive damages. The punitive damages were later reduced to $39 million.

Want the latest institutional investment industry news and insights? Sign up for CIO newsletters. 

The suit also cites a March 2019 jury verdict in the first federal Roundup cancer lawsuit to proceed to trial that found the plaintiff’s exposure to Roundup was “a substantial factor” in causing his non-Hodgkin lymphoma.

“In truth, defendants knew or recklessly disregarded that the acquisition would not result in the benefits for Bayer that defendants had represented, due to Monsanto’s significant exposure to liability risk related to Roundup,” said the lawsuit. “As a result of defendants’ misrepresentations, Bayer ADRs traded at artificially inflated prices.”

During the class period, Bayer’s stock price declined approximately 33% to $17.85 per ADR from a high of $26.59.

In response to the lawsuit, Bayer said it is confident that it acted in accordance with its obligations under the applicable securities laws.

“Bayer conducted appropriate due diligence regarding all aspects of the Monsanto acquisition, including having outside counsel conduct diligence of litigation and regulatory issues,” said a Bayer spokesperson. “The acquisition of Monsanto was carefully planned and executed and the members of the board of management and of the supervisory board have acted in accordance with their duties.”