Hedge Fund Investors Set To Pour Money Into Traditionally Popular Strategies

by Carla Johnson, Investors Offshore.com

18 July 2006

Hedge fund investors plan to increase their exposures to most of the traditionally popular hedge fund strategies, although Long/Short strategies could see significant outflows, according to TARA Capital’s latest Hedge Fund Strategy Barometer (HFSB).

The HFSB quarterly overview of hedge fund investor trends was conducted with 21 European based investors who have committed a combined $94.65 billion invested in hedge funds.

The survey found that hedge fund investors are keen to build up the size of their commitments to the Relative Value sector, with all three strategies experiencing their best results for over a year. This appetite is most pronounced for Fixed Income and Convertible strategies, while demand for Equity Market Neutral is now at its strongest level since 2004, with one third planning to increase exposures.

After the near mass exodus from Convertible Arbitrage funds in late 2004 and early 2005, investors are becoming progressively more interested in the strategy as demonstrated by a solid 28% of respondents planning to add, with only 6% planning to reduce exposure.

Multi Strategy remains a favoured strategy, with 44% planning new investments. Demand for Merger Arbitrage remains consistent although at more muted levels, while almost a third of investors will be increasing their exposure to the Distressed sector.

The most interesting result this quarter is the decline in popularity of Long-Short Equity strategies. Although Global Long-Short and Sector Specialist Long-Short held up quite well, demand for the bulk of Equity strategies has dropped.

Most dramatic is the fall-off in demand for European and Japan funds. For the first time since the HFSB was launched in 2003, more investors plan to reduce than increase their level of investments to European funds, while for Japan, only 28% of respondents plan to make new commitments. This is a continuation of the long term decline in popularity for the sector, down from a high of over 90% in the HFSB of Autumn 2003.

Although Global Macro funds managed on a discretionary or fundamental basis continue to score well (56% plan an increase), there has been a sharp uptake in the level of interest for the Managed Futures category. The HFSB explained that these funds have struggled to attract investor interest, although these most recent results indicate a potential "pivotal moment" for the strategy.

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