Hedge fund managers are feeling optimistic about their economic prospects over the next 12 months.
In a recent survey, 90 percent of hedge funds reported a positive outlook for their firms’ futures, according to the Hedge Fund Confidence Index, a global index produced by the Alternative Investment Management Association with law firms Simmons & Simmons and Seward & Kissel.
The HFCI was based on a poll over 300 hedge funds across the globe, accounting for approximately $1 trillion in assets, during the first quarter of 2021. Respondents were asked to rate their economic confidence levels on scale of -50 to +50, with +50 indicating the highest level of confidence. Based on responses, the average measure of confidence was +18 percent, a nearly 40 percent increase from the confidence levels reported last quarter.
“Hedge funds appear to be riding a wave of optimism sweeping the globe as it moves closer to exiting the pandemic,” the group said in the report.
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The report attributes much of this “cautious optimism” to the increased distribution of Covid-19 vaccinations and the slow lifting of pandemic-related economic restrictions. In the first three months of 2021, hedge funds have also seen a “solid set of results,” returning 6 percent net of fees for the year as of March 2021, according to the report.
“The feeling we get from managers is that they are a lot more positive about being able to get out into the market and meet with investors,” Tom Kehoe, managing director and global head of research and communications at AIMA, said in a phone interview. “You’ve got a strong tailwind of performance behind the industry as well.”
According to the report, investors are looking at hedge funds to manage risk during market volatility and turning to hedge funds as alternatives to low-yielding fixed-income strategies.
As for the hedge funds, optimism regarding future performance differed based on strategy. Among those that participated in confidence index, long/short equity funds, event-driven funds, commodity trading advisors, and managed futures funds cited the highest levels of confidence. Long/short equity funds have continued to rank among the best performing investment strategies, according to the report.
“Our sense from conversations we’ve had is that these strategies have done well and they continue to be in favor with investors,” Kehoe said. “As we think about how the market will evolve over the next 12 months, investors will look to hedge funds to be able to manage risk better than other asset classes at this time and to preserve capital.”
It’s also a prime time to launch a hedge fund, especially if a manager has pre-existing relationships with investors, according to the report, which said popular strategies among investors include specialist sector equity strategies, macro funds, special-purpose vehicles, and blank-check companies, or SPACs.
“The sense of optimism has been a positive surprise,” Kehoe said. “I would’ve expected them to be a little more cautious in how they feel about things, but instead, there’s a real sense of ‘we can get on with things.’”
