Diversification is top priority

Hedge funds have traditionally enjoyed their days in the sun when markets are volatile - that whole original premise of the hedge fund with its ability to go long and short of markets was that they could make money while everyone else was losing it.

But last year’s extraordinary markets, with losses in both equities and bonds, found hedge funds struggling. Hedge fund administrators Citco recorded a weighted-average loss of -7.02 per cent for all of 2022 and this year is proving no kinder, with hedge fund data provider HFR reporting that on the heels of a 2.2 per cent return in January, February 2023 saw the investable HFRI 500 Fund Weighted Composite Index post a decline of -0.38 per cent.

The few performance gains lie among the macro strategies and managed futures – which has always enjoyed these intense periods of positive returns when everything else is just falling away.

Against this background comes the report from Managing Partners Group which surveyed institutional investors and wealth managers, responsible for GBP258 billion in assets, and found that nearly two out of five (36 per cent) believe allocations to hedge funds will increase dramatically over the coming year, with a further 57 per cent predicting a slight increase.

The study, among 100 professional investors across Switzerland, Germany, Italy, the UK and the US, found the main driver of interest in hedge fund strategies is a growing desire to diversify portfolios.

Around 62 per cent cited diversification as the main benefit for clients for investing in hedge funds and more than half (52 per cent) of professional investors questioned cited the potential for stronger returns than traditional investment strategies while 50 per cent pointed to the opportunities created for hedge funds by ongoing volatility.

Beverly Chandler, Managing Editor