Robert Leonard, Managing Director and Global Head of Capital Services at Credit Suisse commented:

“Institutional investors appear more optimistic regarding their plans to allocate to hedge funds than they were this time last year, primarily because of their ability to generate uncorrelated returns and lower volatility in a broader investment portfolio.“ 

“The survey also provides valuable insight as to where investors are seeing opportunities in the coming year.  As market volatility re-emerges, investors have once again begun to look at strategies such as Global Macro and CTA’s as well as Energy/Commodities.  These are in addition to other previously favored strategies, such as Event-Driven and Equity Long/Short.“   

The survey, produced by Credit Suisse’s Hedge Fund Capital Services Group, is one of the most comprehensive in the industry —focused on pension funds, endowments, foundations, consultants, family offices and funds of hedge funds—and with respondents diversified across all regions.

Key highlights from the 2015 Credit Suisse Annual Hedge Fund Investor Survey:

• Overall sentiment for industry growth was quite positive, with investors forecasting a 14.4% increase in hedge fund industry AuM during 2015.  This is an increase over last year’s forecast, which investors estimated at 12.0%.  If accurate, this forecast growth would push industry assets over $3 trillion for the first time in its history.  

• Global Macro was ranked to be the most in demand strategy for 2015, with 32% net demand.  This follows several years of relative underperformance compared to some other strategies.  Investors appear to be considering a range of macro related factors, such as central bank divergence, Greek debt issues and regional growth uncertainties. 

• Other strategies favored for potential allocations in 2015 were Event–Driven (#2) with 26% net demand (despite a significant decrease from last year when it was ranked #1) and CTA/Managed Futures (#3) funds with 24% net demand (which ranked last in the 2014  survey). 

• Additionally, Commodities and Natural Resources-related funds saw a significant bounce in interest from last year, as investors evaluate the opportunities being generated from the current dislocations taking place in world energy markets.    

• When asked about key factors for selecting hedge funds, investors overwhelmingly referenced net returns, followed by low correlations and reduced volatility as the most important data points in their evaluation process.  Surprisingly, almost 70% of respondents chose not to include fees as one of the top three factors in selecting a new fund.  This may indicate that institutions are reasonably comfortable with current industry fee structures.

• In terms of regional preferences, Developed Europe (29% net demand) saw a decrease in interest levels from last year, however overall appetite remains strong.  Close behind were Global strategies and Asia Pacific (at 28% net demand each).  North America was also rated highly as a region for focus, with 22% in net demand. 

• Over half (53%) of investors said that they were most likely to allocate to those funds with AuM of $250 million to $1 billion this year.  This appears to be an effort by investors to invest with funds that are not yet capacity constrained and may also have the flexibility to take advantage of smaller market opportunities.

• Investor appetite for UCITS remains strong, with 30% of investors either increasing or maintaining allocations to the space.  Growth in demand continues to come from retail intermediaries in EMEA region.