Hedge Funds Seen Luring Up to $30 Billion in Recovery This Year

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Hedge funds are likely to attract as much as $30 billion from investors this year, marking the industry’s first annual net inflow since 2017, according to Barclays.

The projected $10 billion to $30 billion in net investment would also be the most since 2015, the bank said in its 2021 Global Hedge Fund Industry Outlook and Trends report, titled “The Bounce Back.” The findings are largely based on a survey of 240 investors who collectively had about $725 billion in hedge funds.

“The large, established hedge funds are still going to get the bulk of the money, but compared to 2020, there will be more allocations to managers outside of existing relationships” Roark Stahler, U.S. head of strategic consulting at Barclays, said in an interview.

Hedge Funds Seen Luring Up to $30 Billion in Recovery This Year

The hedge-fund industry saw $30 billion in net withdrawals last year, largely from investors yanking money early in the coronavirus pandemic to shore up reserves during the market downturn. Once they had regained their bearings, many investors had trouble redeploying their capital as the new socially-distanced environment made conducting due diligence harder, according to the Barclays report.

Ultimately, 27% of investors said they pulled more money from hedge funds in 2020 than they initially expected, the report showed. And when they did invest, they preferred funds with whom they already had a relationship.

Investors this year are seeking to reduce cash and fixed-income holdings, and are “highly interested” in illiquid alternatives, according to Barclays. The company noted that there are many uncertainties in its inflow projections, with the evolution of the pandemic and hedge funds’ performance set to be important factors.

The most popular hedge-fund strategies this year are sector-specific equity managers, market-neutral stock-pickers and discretionary macro funds, Barclays found. On the flip side, generalist equity funds are least in favor.

Other survey highlights:

  • The first quarter of 2020 was the worst quarter in history for hedge funds performance-wise (an 11.5% loss). However, the funds then went on to post their best three-quarter performance ever (up 26%).
  • About 41% of respondents said they plan to boost investments in hedge funds this year, while 45% plan to add to their private equity and venture capital books.
  • Respondents said they expect to have about 60% of their staff back at the office by the end of June. Still, they’re unlikely to take in-person meetings with fund managers until the second half of 2021 at the earliest.

©2021 Bloomberg L.P.

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