Hedge funds are offering access to private markets and a way to enhance the traditional 60/40 investment model, according to findings of Credit Suisse’s 2021 Hedge Fund Investor Survey.
The firm polled over 200 institutional investors representing $800 billion in hedge fund capital. According to the findings published today, 70% of investors plan to make changes to their portfolio this year due to lower bond yields. Hedge funds were the favored asset class to enhance that traditional investment model, followed by high-yield credit, equities and private credit.
Over half (53%) invest in private markets equity through hedge funds, with family offices and endowments/foundations being the most active. Credit Suisse pointed to the ample supply of pre-IPO companies and PIPE transactions, access, knowledge and return potential as driving the investor appetite for private markets.
“The current rate environment is creating a sense of urgency for investors to identify new sources of returns for their fixed-income portfolio,” said John Dabbs, global co-head of prime services and co-head of Americas Equities at Credit Suisse. “Our survey highlighted that investors are looking to hedge funds in addition to other asset classes in meeting their long-term obligations.”
Over the past 12 to 18 months, 61% of allocations were directed to non-traditional structures – mostly co-investments and managed accounts – driven by investors’ desire for customized products. According to Credit Suisse this trend of recent years is still picking up with 64% of investors saying they will increase their investments to non-traditional offerings.
Jaynita Sodhi, head of Credit Suisse Capital Services Americas, noted that investors are indicating strong interest in equity-oriented strategies, particularly around sector and regional specialists. In the survey, seven out of the top 10 overall strategies favored by investors were equity-oriented with fundamental, healthcare, emerging markets and TMT sectors leading the way. On a regional basis, APAC was the most in-demand region and China the most preferred country.
“We also noticed a large sentiment upswing for discretionary macro and multi-strategy managers,” added Sodhi. “Hedge fund dispersion for firms employing these strategies widened considerably in 2020, highlighting the importance of manager selection in driving portfolio returns.”
Within private markets though, LPs are increasingly going the hedge fund route due to managers’ acumen in selecting next-generation companies that could be disruptive to publicly traded peers, added Joseph Gasparro, head of content for Credit Suisse Capital Services Americas.