Hedge fund confidence falls to two-year low: AIMA

North American hedge fund managers were among the least confident

Hedge fund confidence falls to two-year low: AIMA

The average confidence of hedge fund managers has sunk to a two-year low, new data shows.

The Alternative Investment Management Association (AIMA) Hedge Fund Confidence Index measures the confidence of hedge fund managers at the prospect of their business over the next 12 months. For the fourth quarter of 2022, AIMA found that overall hedge fund confidence fell to 14.1, an 11-point drop from the previous quarter’s yearly high of 25.4.

This is also the lowest score recorded since the hedge fund confidence index began two years ago – or since Q4 2020’s 13.8 – and four points lower than the index’s historical average of 18. The downturn in hedge fund confidence from Q3 2022 was common to all regions and fund sizes.

While the downturn was informed in part by the current economic landscape and recent wave of regulatory changes from the US Securities and Exchange Commission, AIMA said a closer look at the data revealed that the overall confidence was mainly dragged down by “a clear divergence in confidence” across strategies which recorded significantly lower scores than the previous quarter.

Hedge funds in Europe, the Middle East, and Africa had the second highest confidence of the quarter at 14.9 driven by Middle Eastern fund managers.

“Beyond the growth of several financial hubs across the Middle East as attractive domiciles for alternative investment funds, the score was driven by a respondent pool dominated by multi-billion-dollar global macro funds who are among the most confident demographics in terms of size and strategy,” the report stated.

The EMEA confidence score lost only to the UK hedge funds at 15.1, which AIMA index reported had remained “stubbornly optimistic” all year, likewise buoyed by the large share of global macro funds in its respondent pool.

North American hedge fund managers turned in the lowest confidence score (13.5) due to the SEC’s frequent – and radical – proposed changes to the private funds’ industry.

The latest AIMA index results were based on a survey of 328 hedge funds with a total US$2 trillion in assets. Hedge fund managers were given a score range from negative 50 to positive 50, with the latter being the highest level of confidence.

“The number this quarter is influenced by managers that are in the long-short equity space,” said Tom Kehoe, Global Head of Research and Communications, AIMA, who chalked the downturn to the poor performance of the equity and bond markets.

The AIMA index forecast “some very strong returns” for investors in global macro, managed futures, and multi-strategy firms over the next twelve months.