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Investor demand for customised hedge funds on the rise

Investor demand for customised hedge funds on the rise

The demand for non-traditional hedge fund vehicles has outstripped the most popular traditional strategy for the first time ever, according to Credit Suisse’s mid-year investor survey.

The study, which covers 279 institutional investors and intermediaries, found that investors had a greater allocation to alternative investment structures in 2018 than they did at the end of last year.

At 32%, separately managed accounts and fund-of-one structures were the most popular route to absolute returns, followed by private credit (31%) and co-investments in equity-focused hedge funds (31%).

Longer-lock formats were also in demand, garnering 27% of the votes of the respondents who together manage $1.04 trillion assets.

The survey also noted that 30% of allocators that currently use traditional products want to invest through new formats.

This demand for non-traditional products is driven by the desire for customisation and transparency of investments, according to Credit Suisse.

Managed accounts, for example, have been around for nearly three decades, but these structures have been steadily gaining popularity since the 2008 financial crisis because they are highly customised to individual investors.

While customisation was important to 32% of the survey respondents, over three-quarters of the participants continue to be more interested in the fees and terms offered by hedge fund managers.

The research found that the average management and performance fees today stand at 1.45% and 16.9%, respectively.

Traditional strategies

The topmost traditional strategy – discretionary macro – followed the non-traditional products to place fifth in terms of net demand from investors for the second half of 2018.

Discretionary macro strategies have a low correlation to risk assets, which is important during times of volatility, and are favoured when interest rates start rising above zero.

However, among Asia Pacific-headquartered investors, who made up 12% of the survey, fixed income arbitrage (29%) was the most popular traditional strategy.

This was followed by equity long/short – fundamental and emerging market equity strategies at 28%, and healthcare equity at 25%.

Hedge funds integrating environmental, social and governance (ESG) factors in investments were the fifth most popular, getting 24% of the votes.

individual investors.

While customisation was important to 32% of the survey respondents, over three-quarters of the participants continue to be more interested in the fees and terms offered by hedge fund managers.

The research found that the average management and performance fees today stand at 1.45% and 16.9%, respectively.

Traditional strategies

The topmost traditional strategy – discretionary macro – followed the non-traditional products to place fifth in terms of net demand from investors for the second half of 2018.

Discretionary macro strategies have a low correlation to risk assets, which is important during times of volatility, and are favoured when interest rates start rising above zero.

However, among Asia Pacific-headquartered investors, who made up 12% of the survey, fixed income arbitrage (29%) was the most popular traditional strategy.

This was followed by equity long/short – fundamental and emerging market equity strategies at 28%, and healthcare equity at 25%.

Hedge funds integrating environmental, social and governance (ESG) factors in investments were the fifth most popular, getting 24% of the votes.

In fact, ESG made its debut appearance in the top 10 strategy preference list globally, with 25% of investors having an allocation.

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