Investors look to China, Asia for hedge fund allocations, Credit Suisse says
- Nearly half of institutional investors seeking investments in Asia-Pacific, according to new survey
- 92 per cent of institutional investors plan to maintain or increase their hedge fund exposure
Institutional investors are increasingly looking for investment opportunities in the Asia-Pacific region, including China, as they seek to add more hedge fund investments to their portfolios, according to a new survey by Credit Suisse.
Of institutional investors surveyed, 47 per cent said they were seeking investments in Asia-Pacific markets, according to the firm’s 2019 Hedge Fund Investor Survey.
About 36 per cent of those surveyed said they were demanding emerging markets investments, while 34 per cent were interested in China opportunities.
“While interest waned over the course of 2018, strong demand has returned in 2019 with the three geographies [Asia-Pacific, emerging markets and China] seeing the largest positive net demand swings,” Credit Suisse said.
Net demand for hedge funds has “improved significantly” in the past four years, increasing from 3 per cent in 2016 to 30 per cent this year, according to Credit Suisse.
Among those surveyed, 92 per cent of investors said they plan to maintain or increase their hedge fund exposure this year.
The survey interviewed 311 institutional investors with US$1.12 trillion in hedge fund investments, including pensions, family offices, insurance companies and sovereign wealth funds.
More than half of those surveyed were in the Americas, 32 per cent were in Europe, the Middle East and Africa and 16 per cent were in Asia-Pacific.
Investors “are focused on re-underwriting their existing portfolios; reducing the overall number of positions and sizing up where they have conviction,” Melissa Toma, co-head of Credit Suisse Capital Services Americas, said. “Investors are focused on growing relationships with managers who have differentiated expertise, strong risk management skills, and a clear track record of being accretive to an investor’s portfolio.”
More than 40 per cent of those surveyed are investing alongside hedge funds in co-investments, a trend that had picked up since 2008. Among firms with at least US$5 billion in hedge fund assets under management, 68 per cent prefer to use the co-investment structure.
“Motivations of higher returns and greater alignment of interests need to be balanced with the challenges of due diligence and short vetting timelines,” Credit Suisse said.
Institutional investors also are increasingly integrating hedge funds into their portfolios, with 42 per cent now categorising hedge funds by asset classes, instead of in an “alternatives” bucket, as they have traditionally been classified, according to Credit Suisse.
Investors who have made redemptions expect to reinvest their gains in the hedge fund industry, with 89 per cent saying they expect to reallocate their capital to other hedge funds, a three-year high, according to Credit Suisse.
Institutions are shifting to more bespoke, tailored offerings, according to the survey.
