The Future of Hedge Funds: What Investors are Looking for in 2024
Hedge funds have been facing a tough time lately, with investors pulling out billions of dollars due to mediocre returns. However, despite this trend, hedge funds still have a loyal following among asset allocators. So, what exactly are these hedge fund devotees looking for in this asset class?
A recent poll conducted by consulting firm Agecroft Partners sheds light on the investments that are considered the best bets in 2024 by 300 allocators. According to Don Steinbrugge, Agecroft’s founder and CEO, these investors provide valuable guidance on where assets are likely to flow.
Despite the recent outflows from hedge funds, some investors are still holding on. Public pension plans, for example, have increased their allocation to hedge funds from 3.3% in 2010 to 6.5% currently. Even the California Public Employees’ Retirement System is considering a return to hedge funds after dumping its $4 billion allocation in 2014.
The Agecroft report highlights the shifting preferences of hedge fund believers when it comes to various hedge strategies. Long-short equity remains the most popular strategy, with 65% of respondents choosing it. This strategy involves offsetting long positions on underpriced stocks with short positions on overpriced shares.
Equity market neutral saw the biggest increase in popularity, jumping 16 points to 63%. This strategy aims to generate gains regardless of the overall market direction by pairing long and short positions based on historical correlations and statistical methods.
Fixed income also found favor, with a jump of 11 points to 46%. Despite the overall negative performance of the bond market this year, high interest rates are attracting investors to this strategy.
On the other hand, ESG funds and cryptocurrency investments are losing appeal among hedge fund devotees. ESG funds saw a decline in popularity to 19% from 38%, while cryptocurrency investments dropped to 24% from 41%. The confusion surrounding ESG criteria and the lack of understanding of cryptocurrencies are cited as reasons for this decline.
Overall, while hedge funds may be experiencing outflows, there is still a loyal following among asset allocators who are looking for strategies that can deliver positive returns in the current market environment.