However, with the increased adoption of UCITS and alternative mutual funds by managers to wrap their hedge fund strategies over the past decade, the industry has also become somewhat more democratized, and smaller investors have been able to access strategies otherwise out of their reach.
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This has resulted in the wider hedge fund sector growing as new sources of capital emerge. We have also seen the emergence of alternative risk premia strategies being offered by hedge funds and funds of hedge funds as an alternative to the traditional hedge fund strategy, with many investors shifting capital into these strategies in the past couple of years.
So, what do the next five years hold for hedge funds? Although the anticipated level of growth in investor allocations is not sizeable, neither is the proportion intending to shrink their allocations, and so we foresee steady growth as the majority plan to keep their level of hedge fund exposure relatively stable, supporting the trend we have seen in recent years. Given the strong returns and record distributions of recent years in the private capital sector, it is little surprise that investors are beginning to shift towards illiquid alternatives in an attempt to further their diversification efforts and build out more sophisticated portfolios.
However, the projections of comparatively modest growth in hedge fund allocations may not be as unfavourable for the industry as the survey results suggest. Over the past decade or so, we have seen more and more investors build out increasingly large portfolios of hedge funds, with generally greater exposure to hedge funds than to private capital assets. Despite hedge fund allocations looking to remain relatively static across many institutional groups, there will likely be a large amount of activity, as investors continue to redeem and rebalance their holdings depending on market conditions and tactical objectives.
When we consider the private wealth origins of the hedge fund industry in the form of capital from high-net-worth individuals and families, it is interesting to observe how the industry appears to be coming full circle.
After 15 years of growth fuelled by institutional capital, there is now an expectation that new growth will be driven by the mass affluent once again. To capture some of this, managers may therefore need to adapt their product offerings to accommodate the different needs of such investors. What does this all mean for hedge fund managers, and how will they fare in the next five years?
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Despite rapid post-crisis growth in the number of managers in the industry, the total number of active hedge funds over time has plateaued from , in tandem with a dramatic drop in new hedge fund managers established each year, across each region. As at the end of there are around 14, active hedge funds, which is relatively unchanged from the end of What will happen to this total in the next five years? According to a recent report by Bloomberg , Sundial Capital Research found that hedge funds as a group bought heavily into American equities, and moreover that many of these funds are still quite strongly invested in U.
The future for hedge funds | Magazine | IPE
Sundial Capital Research president Jason Goepfert suggests that, while "hedge funds are fleeing stocks," they're not doing so quickly enough. Hedge funds have taken approaches ranging from cautious to innovative in recent years, as many players have faced significant barriers to generating positive returns. The group of funds faced its worst year since , and hedge fund managers have only recently started to return to stocks in a significant way, reflected in the increased risk appetite marked by a boost to gross leverage across the hedge fund industry, per the report.
Some analysts believe that market capitulation is a sign that a downturn has reached its lowest point.
When sellers give up on their holdings, opportunistic buyers see the chance to buy up stakes at bargain prices. From another perspective, though, the longer that hedge funds hold equities, the lengthier the downturn is likely to be. Still, a Nov.
Where next for the hedge fund industry?
Whether funds like these have more room and desire to sell or not will likely have an impact on the future of everyday investors as well. Hedge Funds.
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