Hedge Funds Gain Favor in Latest Sign of Rebound

Big investors including pensions and family offices are taking another look at hedge funds, as they navigate the market turbulence sparked by the Covid-19 pandemic.

While the industry was hit with yet another quarter of outflows -- its ninth in a row -- the results of a Bloomberg Mandates survey suggest better times are ahead. This comes weeks after a Credit Suisse Group AG poll found a similar trend: Net demand for hedge funds was the highest in at least five years, with interest in the industry outranking others.

The findings are the latest signal of a turnaround for the beleaguered industry, which has faced a tough capital-raising environment for much of the last decade as investors revolted over high fees and mediocre returns. Prominent names including George Soros’s family office and the Texas pension fund are leading the charge, pumping cash into managers in the past few months to diversify assets.

Bloomberg’s mandates group surveyed 50 institutional allocators from May 14 to June 10. About half of those polled managed more than $1 billion. Here’s a look at the findings:

Hedge Funds Gain Favor in Latest Sign of Rebound

Almost half of institutional investors re-positioning their portfolios boosted allocations to hedge funds or plan to this year. The industry emerged as the top pick among six major alternative asset classes, followed by private debt. About 60% of those surveyed said they were re-jiggering their investments as a result of the market turmoil.

Hedge Funds Gain Favor in Latest Sign of Rebound

Long-short equity was the most popular hedge fund strategy, followed by distressed debt and global macro. Funds-of-funds attracted the least investor interest.

Hedge Funds Gain Favor in Latest Sign of Rebound

Hedge funds are seizing on the increased demand, pitching new ideas to capitalize on market dislocations. The two most common pitches were for new funds and re-openings of previously-closed vehicles.

Among those presented with new opportunities, more than 40% said allocations were in progress and about 20% plan to invest within six months.

©2020 Bloomberg L.P.

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