Hedge fund investors focus on Asia and emerging markets equity

Investors putting their money into hedge funds are setting their sights on equities in 2018 – with emerging markets strategies coming out on top – according to the 10th annual Global hedge fund investor survey from Credit Suisse.

The 345 institutional investors polled, representing $1.1 tn of hedge fund investments, express a ‘strong appetite’ for equity-focused approaches in 2018, says Credit Suisse, with emerging markets equity coming out on top at 33 percent of respondents, and climbing from last year’s third-place spot by net demand. Investors in the Americas show the highest level of interest in emerging markets of the regions studied, at 39 percent.

The report also examines regional trends, with investor interest highest in Asia-Pacific (50 percent), followed by emerging markets (39 percent) and developed Europe (32 percent). ‘These were also the regions that experienced the largest year-on-year swings in net demand,’ write the study authors. 

Comparing net demand with last year’s sentiment, Asia-Pacific has increased from 24 percent to 50 percent, emerging markets from 22 percent to 39 percent, and developed Europe (which was ranked sixth last year) has grown from 13 percent to 32 percent.

‘While each of these geographies will have idiosyncratic reasons for increased interest (elections in EMEA, clarity on Brexit), all three regions are also benefiting from stronger earnings growth and attractive valuations,’ continue the study authors. 

‘Conversely, net demand for North American markets was relatively flat, as investors appear to be comfortable with their current allocations to the region,’ writes Credit Suisse in a statement accompanying the report. 

Asia-Pacific remains most popular among hedge fund investors in the Americas, EMEA and Asia-Pacific itself. Although the global regions trend (Asia-Pacific, emerging markets, developed Europe) is mirrored in the Americas’ investment preferences, EMEA investors put Japan in third place, while those in the Asia-Pacific region rank Greater China as second, followed by global strategies.

Elsewhere in the report, investors highlight increasingly diverse fee structures, increased volatility in 2018 and ‘the continued rise of artificial intelligence-driven and crypto-currency-focused strategies.’

Credit Suisse also notes the strong performance of hedge funds in 2017, with 74 percent of institutional investors saying their hedge fund portfolios had met or exceeded return expectations over the year.

‘Last year hedge funds had strong performance and also continued to improve the alignment of interests between themselves and their investors,’ says Robert Leonard, managing director and global head of capital services at Credit Suisse, in the company statement. ‘Accordingly, as we begin 2018, the vast majority of institutional investors appear pleased with the contributions from their hedge fund portfolios. In fact, the number of investors who indicate that their hedge fund allocations had met or exceeded their expectations has more than doubled from last year, which is a very positive development for the industry.’