An overwhelming majority of investors said they would allocate to hedge funds in the second half of 2014, particularly favouring event-driven strategies, according to Credit Suisse.
The Swiss bank surveyed 284 asset owners representing $544 billion in hedge fund investments and found 97% expressed increased appetite for the asset class for the rest of the year, much higher than the 85% that showed interest in the first half.
“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, global head of capital services at Credit Suisse, said.
Event-driven strategies were the most sought after globally, with 56% of investors planning to allocate.
A sharp uptick in M&A activity—up 75% year-to-date on 2013 figures by the mid-point of the year, according to Thomson Reuters—may have helped fuel the desire for event-driven strategies.
Long/short equity strategies with an emphasis on a fundamental approach followed suit, with 49% expressing interest in allocating the rest of the year.
Recent reports by Preqin and eVestment also found event-driven strategies led the sector’s revitalization in both performance and inflows in the second quarter of 2014. Preqin said event-driven funds saw an average gain of 5.24% the first half of the year, boosted by global merger and acquisition strategies. These strategies also brought in $15.5 billion in new assets in Q2, eVestment said, as investors were driven to allocate by their good performance.
Demand for emerging market equity strategies saw a rebound, especially among American-based investors, as 20% of those answering the survey said they would increase allocations in the second half of 2014, compared to 11% in the first half.
On the other hand, interest in global macro strategies fell again over the last year, Credit Suisse found, as it slipped to the sixth preferred strategy by investors. Only 17% of those surveyed expressed demand for the strategy. CTA and managed futures were the least desired strategies, with investors stating they would decrease their allocations going forward.
Credit Suisse’s survey also found that of those intending to allocate to hedge funds, pension funds were the least likely to allocate while fund of funds and private banks are expected to allocate the most.
“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,” Leonard said.
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