Big investors will increase their allocations to hedge funds next year – especially equity-orientated funds – and will be looking for small and new managers to take most of their money, according to a survey by US brokerage Concept Capital Markets.
The survey, of 108 pension funds, endowments, funds of funds and family offices in the US and Europe representing a total of $US150 billion invested in alternatives, shows a continuation of the trend to alternatives, probably helped by low interest rates and languid share markets.
Respondents to the survey overwhelmingly – 86 per cent – said they would be increasing their allocations to hedge funds in 2013. Emerging managers look likely to be the principal beneficiaries, with 58 per cent of investors saying they would target managers with less than $US50 million under management. Also, 61 per cent said they would invest with managers which had track records of less than two years.
“This bodes well for the many start-ups of the past couple of years, including those who’ve come out of the proprietary desks at the big banks,” Concept Capital says. “The latter (big banks’ proprietary trading desks) have materially downsized or shut down in the wake of the Dodd-Frank law.”
A couple of things for custodians to consider:
. the respondents showed little interest in moving to SMAs (separately managed accounts), although other evidence in Concept Capital’s daily business has shown a clear trend in this direction.
. not many respondents wanted to invest in hedge fund strategies though mutual funds or UCITS products, probably because of the institutional skew of the survey universe.
Concept Capital advises its hedge fund clients to expect increased demand for both SMAs and mutual funds or UCITS funds, notwithstanding the survey results.
The firm also said hedge fund managers needed to be aware that investors were increasingly seeking greater transparency and better redemption or lock-up terms.
The most likely candidates for new investment were: long/short global and US equities, multi-strategy equities and event-driven strategies, rather than fixed interest or market-neutral strategies.
For the full report, email Frank Napolitani at: fnapolitani@conceptcapital.com
