Hedge Fund Barometer Shows Strong Demand For Macro Strategies

by Phillip Morton, Investors Offshore.com

29 March 2006

Tara Capital's latest Hedge Fund Strategy Barometer (HFSB) has shown a rise in demand from investors for global macro hedge fund managers, while demand for long/short equity strategies appears to be waning.

According to the Geneva-based hedge fund advisory firm, the eleventh HFSB shows that a record 63% of respondents are planning to raise their exposure to global macro strategies, with not one respondent saying that they plan to exit the strategy in the near future.

With regard to equity strategies however, European Equity hedge polled its lowest ever score this quarter, with only 26% of investors planning to raise their holdings - a somewhat surprising response given the relative strength of the sector and of European economies.

According to Tara Capital, this decrease in interest is connected to the rebalancing of allocations following a strong performance from European Managers. Nonetheless, the HFSB has detected continuing strong demand for emerging market equities, with 41% of respondents planning to increase their allocations to emerging market hedge funds.

“Increasingly investors are looking to Emerging Market Managers who actively hedge their exposures since some profit taking can be expected following the strong rally over the last three years for these markets.” observed Cyril Delamare, Managing Director of Tara Capital.

After a torrid year, convertible arbitrage strategies appear to be finally coming back in favour, with almost one fifth of respondents now planning to increase their exposure to the strategy. This is in sharp contrast to the last HFSB when not one investor was willing to commit a new allocation to the area.

Demand for equity market neutral funds has declined mildly, while there has been a major slump in interest for fixed income strategies, with 37% of investors reporting that they will be lowering their exposure to this sector.

The HFSB found that demand for event driven strategies including distressed equities is relatively muted at present, although, in contrast, the merger arbitrage sector continues to poll well, with over one third of respondents planning to raise their weightings.

February was the busiest month for M&A activity since the start of 2000, which has helped to drive investor interest in this sector, Tara Capital noted.

Recommended