Preqin’s Hedge Fund Investor Profiles database tracks the future plans of investors allocating capital to hedge funds through its Fund Searches and Mandates feature. This data, sourced directly from Preqin’s interviews with investors, shows that fund of hedge funds managers are actively rebalancing and redeeming their hedge fund portfolios more frequently than any other investor type in an effort to maximize returns and seek new opportunities. We look at their investment plans and the strategies they are targeting in 2015.
Around 39% of all searches initiated between October 2014 and February 2015 by fund of hedge funds managers include a multi-strategy approach; single-manager multi-strategy hedge funds were solid performers in 2014, returning 4.30% and outperforming Preqin’s All Strategies Hedge Fund Benchmark (+3.85%). Long/short strategies were the next most searched fund type (18%), with almost all of these searches focusing on long/short equities. This suggests that fund of hedge funds managers continue to seek value in hedging against continued equity market volatility; the strategy generated comparatively lower returns in 2014 (+3.86%) than in 2013 (+14.52%). Macro strategy funds account for the third highest number of mandates with 14%, indicating that interest remains strong despite a poor 2014, with Preqin’s Macro Strategies Benchmark returning only 1.99%. In contrast, within this category, managed futures/CTAs returned 9.96%, its best annual return since 2010 (+14.73%).
On a regional level, North America-based managers show a significantly higher demand for long/short equity (24%) and credit types (14%) based on the proportion of fund searches initiated, compared to Europe-based managers that accounted for 9% and 7% respectively for the same strategies sought. The interest in credit from North America-based managers comes on the back of 2014’s success, when they proved to be the best performing strategy, returning 5.59%; asset-backed lending strategies in particular continued to impress, recording more than three years of consecutive positive monthly returns. Macro funds are also receiving particular attention in Europe due to the ongoing economic stimulus program announced by the European Central Bank in January 2015.
Overall, data from the Future Fund Searches and Mandates feature on Preqin’s Hedge Fund Investor Profiles suggests that fund of hedge funds managers are prioritizing multi-strategy funds in 2015 over other strategies. However, on a regional level, North America-based fund managers are seeking out those managers offering long/short equity and credit strategies, while many Europe-based managers value the uncorrelated returns offered by macro strategies and the relatively low volatility characterized by relative value funds.