Demand for HFs building as investors look to l/s strategies, emerging managers

The largest and most maligned hedge fund strategy of recent years may be poised for an upswing, should figures gathered by Agecroft Partners in recent weeks signal true investor sentiment.

In a survey of nearly 300 investors that are registered to participate in the Gaining the Edge — Global Virtual Cap Intro event, Agecroft found that 65% of investors indicate some interest in long/short equity strategies.

Most of respondents to the Agecroft survey (36%) were family offices, multi-family offices and high-net-worth individuals. Another 33% were institutional investors, including pensions, endowments and foundations.

They also asked investors of their minimum fund size for making an allocation. Just over 40% said they would consider new fund launches, while an additional 23% said they would allocate to funds with less than $100 million. An astounding 71% said they were willing to invest in a strategy with less than a three-year track record.

Agecroft’s Donald Steinbrugge chalks up the willingness of investors to allocate to younger and smaller managers indicates another important shift, in that large pensions have made improvements to their internal processes that allows for greater comfort in investing with emerging managers.

In general, the third-party marketing firm anticipates a busy fourth quarter due to pent up demand from earlier in the year. They also point to a greater willingness to complete the entire due diligence process remotely.

Multi-strategy and event-driven funds showed the second highest level of interest at 57% and this was followed by equity market neutral (54%), special situations/specialty financing (52%) and distressed at 51%.

There was also increased interest in global macro, compared to a few years ago, which indicates investor confidence that this strategy can take advantage of the increased volatility. 

 More importantly this increase, along with the high level of interest in equity market neutral strategies, further supports the trend of increasing demand for strategies that are uncorrelated to the capital markets, according to Steinbrugge.

He points to a combination of reducing portfolio tail risk and institutions shifting assets away from low yielding fixed income to a diversified portfolio of uncorrelated hedge fund strategies in order to enhance returns. Other strategies that will benefit from this trend include relative value fixed income, short term CTAs, and reinsurance.

Steinbrugge added, “The interest in distressed and special situations shows an increased willingness by investors to consider less liquid strategies along with a blurring of the lines between hedge funds and private equity as investors consider both structures to access these strategies.” 

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