Hedge funds went above and beyond in 2020

Poll finds over 90% of investors expressed satisfaction, with an overwhelming majority turning an eye toward risk management

Hedge funds went above and beyond in 2020

Following a year of outperformance and going beyond expectations amid market turmoil, hedge funds are set to see increased interest and capital allocations from investors in 2021, according to a new report.

In a survey of investors conducted in Q4 2020, representing US$3.8 trillion in total investor assets of which US$156 billion was in hedge funds, a new joint poll by business intelligence provider HFM and the Alternative Investment Management Association (AIMA) found 90% of respondents said they were satisfied with the performance of hedge fund investments in 2020.

“Despite a challenging market environment in 2020 hedge funds were able to fulfil their intended role in investors’ portfolio, namely delivering risk management and downside protection,” said HFM Chief Data Officer Elias Latsis. “This bodes well for hedge funds in the year ahead, but managers must avoid becoming victims of their own success with performance expectations now set even higher.”

Of all those surveyed, 45% of investors said they plan to raise their allocations to hedge funds, while more than half said they’d maintain their allocation to other investments. Among those who planned to reweight more toward hedge funds, nearly two thirds (64%) cited expectations of even stronger returns; two fifths (39%) were concerned with valuations in equity markets, while nearly a third (32%) saw hedge funds as a possible long-term substitute for fixed income amid the continuing low-rate environment.

Risk emerged as the overwhelming top priority among investors for H1 2021. Ninety-seven per cent (97%) placed risk mitigation as their primary concern, and hedge funds were seen as the vehicles best suited to deliver.

“Our research shows that 63% of family offices and high net worth individuals plan on increasing their hedge fund allocation in the first half of 2021,” said James Sivyer, HFM’s head of Investor Research.

The survey also unearthed expectations of a quant revival in 2021, with systematic firms most likely to see a rise in allocations in H1. Almost one third (31%) of investors are considering allocations to quant strategies, followed closely by arbitrage/relative value (29%) and global macro (25%).

“The environment and implications from COVID-19 demonstrated that in times of market volatility and business uncertainty, alternative investments fulfil an increasingly important role in an investor’s portfolio,” said Tom Kehoe, AIMA Managing Director and Global Head of Research and Communications.

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