Investors increasingly looking to make hedge fund allocations, says Credit Suisse study

Prime Brokerage
17 Jul, 2014

The overwhelming majority (97%) of institutional investors plan to be highly active in making hedge fund allocations during the second half of the year, according to a mid-year survey by Credit Suisse Capital Services.

This compares with 85% of investors who confirmed they had been actively making allocations during the first half of the year. “The high percentage of respondents with strategic intentions to actively allocate to hedge funds in the second half of this year could reflect a prolonged due diligence process, in response to high levels of market volatility back in March and April. Regardless, it does seem clear that institutional investors remain committed to hedge funds, as many see current equity and bond market valuations as high and are looking to further diversify their portfolios,” said Robert Leonard, managing director and global head of capital services at Credit Suisse. 

In terms of strategy, event driven and long/short equity are the most popular across the Americas, Asia-Pacific and EMEA (Europe, Middle East, Africa). This comes amid relatively decent performances across both strategies. Hedge Fund Research, the Chicago-based data provider, said the average long/short equity manager delivered gains of 3.32% year-to-date, while event-driven strategies were up 4.36%. The average hedge fund manager has posted returns of 3.16% in 2014. Emerging market equities saw a substantial rebound, and is now the fourth most sought after strategy, up from 11th, added the Credit Suisse survey.

Investor interest in global macro stood at 17%, and continues to decline. Macro strategies have struggled to excite having delivered flat returns for the last few years now. At present, the average macro manager has gained 0.89% in 2014, said Hedge Fund Research.  However, global macro has curried favour among EMEA investors, who ranked it third in terms of strategy preference.

Investors remain bearish on commodity trading advisors (CTAs) and managed futures with redemptions being forecast. The Credit Suisse survey said there was a negative net demand of 17% globally for CTAs and managed futures. Other industry surveys have reached similar conclusions to Credit Suisse. Investors told a survey conducted earlier in 2014 by the capital introductions arm of Goldman Sachs Prime Services that they intended to redeem from CTAs and managed futures as desultory returns show no sign of improving.

Others have advised investors approach CTAs with a less short-termist mind-set.  Academic research – Is this time different? Trend following and Financial crises –published by Professors Mark Hutchinson and John O’Brien of University College Cork in Ireland, analysed the impact financial crises had on CTAs. It evaluated how trend following portfolios fared during the 1929 crash, the 1973 oil crisis, the 1981 emerging markets debt crisis, Black Monday in 1987 and the DotCom bubble in 2000. The study concluded CTAs often underperformed during these disruptive market events although rapidly returned to normality when markets stabilised.

Credit Suisse polled 284 institutional investors globally with  $544 billion allocated into hedge funds.


hedge fundsCredit SuisseHedge Fund Researchlong/short equityevent-drivenmacroCTAsmanaged futures