Long/short equity continues to be a commonly sought after hedge fund strategy among institutional investors and early indications suggest that this strategy is gaining momentum in the early stages of 2013. Preqin’s Hedge Fund Investor Profiles data indicates that 59% of investor searches initiated in January 2013 are targeting long/short equity hedge funds. This is an increase on the 45% and 30% of investors that were targeting the strategy in mandates added in December and November respectively.
Investors announcing searches in January include Fairfax County Uniformed Retirement System, which is searching for a long/short equity manager as part of plans to increase exposure to the strategy. Fund of hedge funds manager Notz Stucki Group, which manages approximately $2.2bn in multi-manager hedge fund portfolios, also plans to add a number of long/short equity hedge funds over the next 12 months on an opportunistic basis.
In terms of other strategies being targeted by institutional investors, global macro is currently the second most favoured strategy among investors, with 31% of January mandates including this strategy, declining slightly from 38% in December. Managed futures/CTA and long/short credit strategies have been cited in 26% and 18% of January investor searches respectively. Fewer investors are targeting event driven hedge funds in the early part of 2013 despite a strong 2012 regarding performance, with 15% of January mandates including the strategy compared with 27% in December.
During 2012, a number of investors had expressed concerns over the performance of long/short equity funds, with the strategy being the most commonly cited as falling short of investor expectations. However, the strategy finished 2012 strongly and performance in the early stages of 2013 has been encouraging, leading many investors to target further investments in the space. The extended period of low correlations can benefit managers that utilize a fundamental long/short approach, leading to higher returns. The diversification of long/short equity funds make them attractive to institutional investors and if performance is maintained then this strategy can be expected to continue to gain momentum throughout 2013.