Credit Suisse recently released its 2019 Hedge Fund Investor Survey, entitled “Trimming the Sails”, which polled over 310 institutional investors globally representing US$1.12 trillion in hedge fund investments. Participants were quizzed on a number of topics, including key industry trends and forecasts, as well as strategy preferences and allocation plans for 2019.
Key highlights from the 2019 Credit Suisse Hedge Fund Investor Survey:-
• Customized Offerings Dominate Capital continues to flow to non-traditional products. 58% of allocations over the past 12-18 months were directed to alternative structures, principally Bespoke Managed Accounts and Co-Investments. Growing interest in customized mandates has led investors to optimize their existing hedge fund relationships, developing holistic partnerships with a concentrated group of managers. The result is a consolidation of hedge funds in allocator portfolios, where the average number of managers in a portfolio (31) is down 35% from 2009.
• Investors Bucket Hedge Funds by Asset Class An increasing number of allocators are integrating hedge funds into their overall portfolio. 42% of investors now categorize hedge fund allocations by an underlying asset class (eg. Equities, Fixed Income) instead of the static, ‘Alternatives’ tag.
• Hedge Fund AUM Recycled within, not Removed from the Industry Redemptions from managers will largely be recycled and stay in the industry. 89% of investors who redeemed from hedge funds in 2018 expect to recycle that capital to other hedge funds, with an increasing amount accruing to managers already in an allocator’s portfolio.
• Manager Selection Factors Performance and downside protection remain paramount evaluation factors for established firms. For new launches, pedigree and performance were most valued, along with a new top factor, the state of the C-Suite team.
Joseph Gasparro, Head of Content for Credit Suisse Capital Services Americas, said, “Allocators continue to recalibrate how they employ hedge funds. Preference is shifting to customized solutions through Managed Accounts and Co-Investments that tailor fit specific investment objectives, exposures, and risk parameters. At the same time, investors are increasingly looking at allocations through the lens of their overall portfolio, converging hedge funds with traditional asset classes.”
For the second year in a row, investors indicated that Asia-Pacific and Emerging Markets are the most in-demand regions, with Greater China the most preferred overall country. While interest waned over the course of 2018 (per our 2018 Mid-Year Hedge Fund Investor Survey), strong demand returned in 2019 with the three geographies seeing the largest positive net demand swings.
Commenting on this, Melissa Toma, Co-Head of Credit Suisse Capital Services Americas, said, “Investors are staying the course on their hedge fund exposure. It is important to highlight they are focused on re-underwriting their existing portfolios; reducing the overall number of positions and sizing up where they have conviction. Investors are focused on growing relationships with managers who have differentiated expertise, strong risk management skills, and a clear track record of being accretive to an investor’s portfolio.”
