More and more investors are investing in hedge funds. They want to protect their investment portfolios from inflationary concerns. According to several research, hedge funds already manage nearly $4 trillion in assets, with the number of investors buying alternative assets still growing.
Hedge fund managers are very optimistic about how they will fare in the next 12 months. Vidrio Financial has conducted a market allocation survey. The research results suggest that inflation concerns during the first half of 2021 led to higher allocations to alternative asset classes such as hedge funds and private equity funds. The Vidrio Financial Allocator Market Survey was conducted at the end of June 2021. The survey involved 4,500 institutional investors who jointly manage $100 billion in assets. 60% of investors were in North America and the rest in Europe, Africa and the Middle East.
The survey found that 1 in 10 investors “significantly adjusted” allocations to make up their portfolio with more alternative assets to protect it from inflation. More than two-thirds of investors, namely 70%, made only “slight adjustments”. About 20% of investors surveyed have not yet adjusted their portfolio, but plan to do so. About 44% of respondents said they allocate the most to commodity funds, with 33% choosing macro hedge funds.
Gygmy Gonnot, managing director of Vidrio Research, said: “The changing market environment has shown that it is beneficial for allocating alternatives.” Increase in Inflationary forces will lead to a further increase in allocations, he said: “Many large institutional investors have made transfers to their portfolios to help them overcome potential short-term inflationary problems. At the same time, many investors think that after a 40-year bull market, any increase in inflation does not have a significant impact on the overall return on portfolios..”
According to further research from BarclayHedge and Hedge Fund Research>s picks up s clear inflow of assets into the hedge fund industry at speeds. New data obtained by BarclayHedge suggests that investors invested as much as $36 billion in hedge funds in May. That’s a 55% month-on-month increase since $23.3 billion went to hedge funds in April.
In addition, Hedge Fund Research said total capital in the hedge fund industry was worth nearly $4 trillion at the end of the second quarter of 2021. That’s an increase of $360 billion since the beginning of the year.
Hedge funds currently manage $3.96 trillion in assets. This is an increase of more than $1 trillion in the last five quarters. In the first quarter of 2020, during the market turmoil triggered by the pandemic, the value of hedge fund assets fell below $3 trillion.
Kenneth Heinz, president of Hedge Fund Research, said: “The world’s leading institutions continue to allocate and expand hedge fund allocations. They see this as an ideal mechanism to participate opportunistically in these strong trends in maintaining tactical flexibility and adapting to an unfavourable macroeconomic environment.”
Growth in optimism for hedge funds
Further evidence of the increase in industry optimism in the second quarter of 2021 is evidenced by the latest data from the so-called “Hedge Fund Credibility Index”, from AIMA, Simmons & Simmons & Simmons and Seward & Kissel. According to the index, optimism grew by 40% in the first quarter of this year. According to the Index, optimism about hedge funds and their performance over the next 12 months is the highest in many years.”.
Each quarter, the hedge fund trust index measures hedge fund confidence in their economic outlook for the year to fall. About 300 hedge funds, which together manage about $1 trillion in assets, answer questions about the prospects for capital raising, revenue generation and cost management, along with the fund’s overall performance outlook for the year ahead. They then score their confidence on a scale from +50 (the highest level of economic confidence) to -50.0 indicates a neutral level of confidence.
The average hedge fund confidence rate in the second quarter of this year was +19.51. Compared to the first quarter, this is an increase from +18.4. Roughly half of all respondents reported a confidence score ranging from +11 to +20, while 30.8% of hedge fund managers reported a score of +21 to +30.
The positive mood in the hedge fund industry is driven by healthy returns. In the first half of the year, this was an increase of an average of 10%, the best score for the first half of the year in the last twenty years. In addition, a better economic outlook linked to successful COVID-19 vaccination in the United States and the United Kingdom contributes to it. However, increased confidence has been expressed by hedge fund managers from around the world.
The highest level of trust was among administrators from North America (+22.5). This was followed by funds in the Asia-Pacific region (+18.2) and then in Europe, Africa and the Middle East (+17.7). When we look at the data from the point of view of applying different strategies, hedge fund managers using so-called “multi” strategies have the highest confidence (+22).
Hedge funds investing in shares, in turn, benefit from “the benefits of market dislocation and high volatility.” Areas that performed particularly well, such as bio-technologies, health and technology, were the driving force behind the sector.
Global macro strategies have been shown to benefit mainly from their role in overcoming inflation threats in the United States and the United Kingdom. The accompanying volatility in stock and commodity prices is usually a good signal for macro funds that can perform above average in such an environment..
Research shows that strong returns are helping to spur a “renaissance” of hedge funds among investors, with investors increasingly seeing hedge funds as an “effective way” to enter the cryptocurrency market and strategies meeting environmental, social and governance criteria (ESG). Hedge fund participation in the cryptocurrency market is likely to be “a catalyst for the development of new investment strategies”.
Investors are increasingly focusing on the qualities that hedge funds can offer them. In particular, hedge funds are able to manage any downside risk caused by market volatility. Hedge fund heterogeneity of investment strategies provides the best potential for significant diversification and the highest potential for achieving better results.
