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Investor Appetite for Event Driven Strategies Surges in Q1 2014 – April 2014

by Nat Auld

  • 25 Apr 2014
  • PE

There has been a marked increase in demand for event driven strategies among hedge fund investors in the first quarter of 2014, possibly as a consequence of the recent strong performance of event driven funds. However this extra demand, particularly from North America-based investors and public pension funds, is seemingly not yet being capitalized upon by fund managers.

According to The Q1 2014 Preqin Quarterly Update – Hedge Funds, 21% of all investors that issued searches in Q1 2014 included an event driven component. This shows a significant increase on the proportion of investors which were seeking investment in event driven strategies in Q4 2013, when the strategy was included in 16% of searches. This marked increase over a relatively short period of time seems likely to be a consequence of the recent strong performance of event driven funds. Data from Preqin’s Hedge Fund Analyst shows that event driven strategies has been the top performing of the Preqin strategy benchmark in the past two quarters, posting average returns of 4.36% in Q4 2013 and 3.27% in Q1 2014. The second best performing fund strategies in these quarters were long/short in Q4 2013, which returned 4.33%, and relative value in Q1 2014, which returned 1.55%.

Public pension funds account for 27% of the investors that are looking to target event driven strategies over the next 12 months, excluding fund of hedge funds managers. This is despite the fact that they only account for 19% of all fund searches. One example of a public pension fund investing in event driven funds is the recent commitment made by Orange County Employees’ Retirement System to the Ionic Event Driven Fund managed by Ionic Capital Management. Event driven funds are also desired by wealth managers, with these investors making up 20% of investors currently looking to invest in the strategy, despite accounting for just 7.5% of searches overall. The majority of investors looking to invest in event driven funds are based in North America, with this region representing 53% of investors targeting the strategy.

The increase in investor appetite for event driven investment strategies will be welcome news to fund managers with the necessary expertise to meet this demand. There is also a clear discrepancy between investor demand for the strategy and the number of funds being launched to meet it – only 9% of hedge funds launched in Q1 2014 have event driven as a core strategy. It remains to be seen whether this disparity will continue, or whether an upsurge in event driven fund launches is just around the corner.

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