Investor Appetite for Europe-Focused Long/Short Equity Hedge Funds – March 2015

by David Corrigan

  • 10 Mar 2015
  • HF

Europe-focused long/short equity managers started the year on a high, posting returns of 1.58% in January. The announcement of the European Central Bank’s (ECB) €1.1tn quantitative easing program is likely to be a main contributing factor to the relative outperformance. Throughout January, major equity indexes across Europe, including the UK, France, Germany, Spain and Italy, were all up. The Greek debt crisis shocked equity markets, but it would appear hedge fund managers were able to navigate through the volatile investment environment at the start of the year. Amid expectations of European stock market growth, we look at hedge fund investors targeting this space.

Preqin’s Hedge Fund Investor Profiles online service currently tracks 1,157 investors with a preference for investing in Europe and long/short equity funds. The majority (62%) of investors active in this space are based in North America, while Europe-based investors make up 29% of the group. Asia-Pacific based investors account for 7%, with Rest of World-based LPs constituting 2%.

Results of a recent survey conducted for the 2015 Preqin Global Hedge Fund Report revealed that 46% of long/short equity investors expected to increase their exposure to long/short equity this year. Furthermore, 31% of those looking to increase exposure to long/short equity felt Europe would provide the best opportunities in 2015. Commentators have noted that with the high equity valuations in US markets, some investors will look towards Europe, citing relatively low valuations and monetary stimulus, as a source of potential growth.

Despite the bullish sentiment felt by optimism of many industry observers, questions still remain over the financial stability of Europe. Although an extension has been agreed with regards to the Greek debt, concerns remain regarding the sustainability of the solution. Furthermore, Russia remains unpredictable in relation to Ukraine, despite a shaky ceasefire being agreed, providing a source of potential volatility, as seen in the summer of 2014. Long/short equity hedge funds can assist investors riding potential volatility.

It remains to be seen whether or not Europe-focused long/short managers can follow up on their relative success in January. Many investors have been bullish on European equities following years of market turbulence, but with the potential for hiccups along the way, utilizing long/short equity funds as part of a wider portfolio might be a consideration among investors.

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