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Top Hedge Fund Strategies: Driven, Long/Short Equity, Fundamental and Emerging Markets Equity

Mergers & AcquisitionsNew York (HedgeCo.Net) – Credit Suisse’s mid-year Hedge Fund Investor Sentiment Survey reports that the second half of 2014 looks set to be a strong period for capital allocations to hedge funds.

Of the investors surveyed, 97% indicated that they plan to be highly active in making allocations during the second half of this year. This compares favorably to 85% of investors who responded that they had already been active in making allocations in the first half of the year.

“The high percentage of respondents with strategic intention 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/April.” Robert Leonard, Managing Director and Global Head of Capital Services at Credit Suisse said. “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.”

The top three strategies by net demand (percentage increasing allocation – percentage decreasing allocation) on a regional basis were:

  • Americas: Event Driven (51%), Long/Short Equity – Fundamental (46%) and Emerging Markets Equity (28%)
  • APAC: Event Driven (64%), Long/Short Equity – Fundamental (56%) and Equity Market Neutral – Fundamental (44%)
  • EMEA: Event Driven (63%), Long/Short Equity – Fundamental (29%) and Global Macro (24%)

Event-Driven (56%) and Equity Long/Short (41%) strategies (particularly those with a fundamental approach), continue to dominate investor appetite. This is consistent with the CS Annual Global Hedge Fund Investor Survey published in March, when investors also ranked those strategies at the top of their lists. It also underlines the on-going rotation of capital by investors from fixed-income into equities.

Emerging Market Equities (20%), has seen a rebound in appetite for the second half of 2014, as this becomes the 4th most in demand strategy for those investors polled, ascending from its 11th place ranking at the start of the year. The strategy is particularly favored by those investors based in the Americas.

Overall investor demand for Global Macro strategies (17%) continues to decline. Investor appetite has consistently decreased over the past year; after being among the top three most sought after strategies at the beginning of 2013, the strategy dropped to 4th at the beginning of this year, and is now ranked 6th overall. However, there was some interest amongst EMEA-based investors, who ranked it 3rd in terms of their strategy preferences.

Investors remain bearish on CTA/Managed Futures, forecasting possible redemptions in H2 2014, with a negative net demand of 17% globally. Interest in Commodities focused strategies, which were negative at the beginning of the year, have now actually turned slightly positive.

The survey covered institutional investors on a global basis, including fund of funds, family offices, consultants, endowments & foundations, private banks, pension funds and insurance companies. Over 57% of responses came from the Americas, while 34% came from EMEA based investors and 9% came from APAC.

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