Event Driven Strategies Continue to Attract Investor Interest in 2015 – March 2015

by Arun Chopra

  • 16 Mar 2015
  • HF

Preqin’s Hedge Fund Investor Profiles database currently tracks 4,409 investors; 37% have a current appetite for event driven hedge funds, a significant increase on 2012’s proportion (22.5%). Figures published in the recently released 2015 Preqin Global Hedge Fund Report also show that 22% of investors looking to increase their allocations to hedge funds in 2015 are aiming to do so through event driven strategies. This makes it the third most sought after strategy, behind long/short equity and macro.

One driving force behind the continued growth in demand for event driven strategies could be the influence of investment consultants. According to interviews conducted by Preqin and published in the 2015 Preqin Global Hedge Fund Report, 50% of investment consultants surveyed said they would advise investors to increase their allocations to event driven funds in 2015. As returns for event driven funds in 2014 at 1.60%  were well short of the previous highs of 15.40%  and 12.40% in 2013 and 2012 respectively, this would suggest that investment consultants believe this strategy has the potential to ‘bounce back’ in 2015 and deliver the strong returns demonstrated in previous years.

Again, despite relatively poor headline returns in 2014, more than 50% of investors interviewed stated that their event driven portfolio returns exceeded expectations over the year, while less than half said the same for long/short equity and macro strategies. Given that event driven hedge funds posted negative returns in four months during 2014, investor confidence remains high. Only 5% of investors said they will look to decrease their exposure to the strategy, the lowest percentage among all hedge fund strategies. Event driven strategies have the potential to deliver high risk-adjusted returns and have the second highest average lock-up period (9.9 months), just behind credit strategies. However, investors continue to be willing to commit capital to this strategy despite its relative illiquidity.

Overall, it appears that investors are still committed to investing in event driven hedge funds, with many increasing their allocations; very few investors are looking to decrease their allocations, despite a disappointing 2014 in terms of returns. The potential for high risk-adjusted returns from event driven strategies is compelling enough for investors to commit to an above average lock-up period and consider increasing or at least maintaining their exposure to this strategy in 2015.

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