In spite of the bouts of volatility and uncertainty of growth in the global market, the institutional investor community is still positive when it comes to alternative investment such as hedge funds.
According to Credit Suisse’s hedge fund investor survey, investors have forecasted a 3.5% increase of total hedge fund assets under management (AUM) in 2016. Currently the estimated AUM of the hedge fund industry stands at just over US$3 trillion.
The survey also revealed that 87% of institutional investors indicated that they would maintain or increase their hedge fund allocations in 2016.
In terms of region Asia-Pacific stood out as one of the top regions for hedge fund inflows with 28% of surveyed participants looking to invest in the opportunistic region. Within Asia, the likes of Japan, China and India were cited by institutional investors as key areas of growth.
China in particular was a standout market last year for hedge funds. Based on information from data provider eVestment hedge funds focused in China returned 7.55% in 2015.
Credit Suisse reports that around two-thirds of institutional investors are expecting returns of 5-10% from their hedge fund portfolios. It’s a contrasting view to fixed income and equities where investors there are expecting less than 5% returns.
However, maintaining hedge fund returns in Asia-Pacific may prove more challenging than anticipated following renewed fears about slowdown and volatility coming out of China. Data from eVestment shows that year-to-date February Asia-Pacific focused hedge funds lost -8.12%. Large Asian markets such as China and India posted double digit losses of -11.65% and -15.65% respectfully.
Crowded trades otherwise known as “herd behavior” is cited by majority of institutional investors for causing significant risk to the hedge fund industry. This sentiment has increased over the last year from 65% of survey percipients thinking this in 2015 to 69% in 2016.
“Increased interest in strategies such as equity market neutral, global macro and equity long/short trading-oriented appears to indicate that investors are anticipating another challenging environment for 2016,” states Robert Leonard, managing director and global head of capital services at Credit Suisse.
