Investors’ Most Liked Strategies On the Sudden Surge of Hedge Fund Demand

Hedge fund demand is surging, and a significant number of allocators find that their investments in alternative vehicle are faring far better than expected.

According to a Credit Suisse survey of allocators released on the 9th of March 2021, higher uncertainty and more market dispersion rendered hedge funds more appealing to investors following several years of low investor demand.

From late December of 2020 to mid-February of 2021, the bank polled 201 institutional investors with nearly $812 billion in hedge fund portfolios. Family offices were the most common type of respondents, accounting for 27%, while funds of funds estimated for 25%.

Profit graph of stock market indicator whit coin pen and notebook blur background. Stock financial statistic graph analysis. Financial fund trade overview in profit graph. Concept Finance

Credit Suisse reports that net demand for hedge funds has increased markedly in recent years.  The bank calculated this by removing the percentage of allocators who were lowering their hedge fund contributions from the proportion of those who were skyrocketing their hedge fund exposures. According to the most recent study, net demand was 52%. Compared to 39% in 2020 and just 12% in 2017.

According to Credit Suisse, today’s markets, with higher stock return distribution, lower stock correlation, and increased price uncertainty, render aggressive strategies more appealing to investors. There is also a more extraordinary track record of results to fuel the demand.

Satisfaction with hedge fund distribution has risen to a record-high 88% of survey respondents. On the other hand, 95% of respondents stated they are using their liquid net assets to build up hedge funds. This figure has been rising since 2016 when over 82% have indicated they want to do so.

In the meantime, according to the poll, 2021 target returns have hit a 12-year peak of 11.2%. Investors gained almost as much in 2020, with participants showing an overall return of 11%. Then again, some hedge fund tactics draw more investors than most others.

Equity healthcare approaches have an enormous net demand right now at 44%, as per Credit Suisse.  This represents a 23% rise year in year out. As per the data results, the strategy is widespread among family offices, endowments, and foundations.

As per the survey, convertible bond arbitrage techniques were the least enticing to investors, accounting for just 17% of net demand.

In-depth analysis:

The best performing hedge fund strategies that have benefited from market volatility in 2020 What were the top-performing hedge funds of 2020?

More than half of the allocators reported that accessing private markets, family offices, trusts, and endowments using hedge funds are at the front of the pack. As per Credit Suisse, 61% of allocations in the last 12 to 18 months went to non-traditional structures such as private market transactions and customized offerings, including managed funds and co-investments.

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