Asset AllocationJuly 26, 2013

Investors Renew Push to Hedge Funds

<em>More money is going in than coming out of the hedge fund sector.</em>

Reported by Featured Author

(July 2013) — The rate of redemptions from hedge funds is slowing as investors maintain their allocations to the sector, research has found.

Some 88% of investors responding to a regular half-yearly survey by Credit Suisse’s prime brokerage desk, said they had allocated to a hedge fund manager in the first half of the year. Almost the same number -87%–said they would allocate further capital in the second six months.

This same set of investors said they would be removing some of the mandates they had with certain hedge fund managers, but the number was lower. Some 77% said they redeemed investments in the first half of the year, but this number was predicted to fall in the second half, with just 68% intending to take their money back.

There was a clear line investors have been taking when allocating their capital. A mid-year sentiment chart showed long/short equity (fundamental) strategies enjoyed the highest net demand-57%–followed by event-driven funds with 47%.

At the other end of the scale, commodities saw a negative 21% score as investors moved away from the strategy, closely followed by emerging market credit with a negative 18% score.

Investors have had a change of heart over their commodities allocation as at the start of the year, the net demand score for the strategy was a positive 7%.

Investor appetite around the world is not uniform, however.

Credit Suisse said credit distressed strategies were particularly favoured in Asia Pacific with 30% of investors citing them as their top choice, while investors based in the Americas favoured more liquid credit strategies (13%).

“Commodity Trading Advisor strategies are predicted to show net allocations from Asia Pacific investors, while the Americas and Europe, Middle East, and Africa-based investors indicated net redemptions in the strategy,” Credit Suisse said.

“The Americas based investors still favour emerging markets strategies, with both emerging market equity and fixed income showing net positive demand. However, investors from Europe, Middle East, and Africa and Asia Pacific both indicated net redemptions from both of these emerging market strategies.”

Hedge fund assets have continued to rise after the financial crisis, despite some strategies failing to outperform. Still, the sector has seen record client assets-married with record leverage in some sectors.