The turmoil of 2008 proved to be a difficult time for market neutral hedge fund managers, who faced intense scrutiny following negative returns correlated to the market downturn. However, despite the demand for such managers dropping in 2008, there is still an important place for market neutral funds in the hedge fund industry and such managers have experienced a revival in interest in recent months. Investors that are currently looking for new managers are likely to look at market neutral funds because they typically provide low volatility and can offer diversification by investing in a range of subcategories of equities.
Fund of hedge funds are the largest institutional investor in market neutral strategies. This is unsurprising as most fund of hedge funds aim to create a diversified portfolio of hedge funds for their clients and market neutral can be helpful to achieve this. Public pension funds are also a key source of capital for market neutral managers seeking new investment. These plans look to hedge funds to generate relatively stable returns with a low risk profile and market neutral funds traditionally are an excellent choice to fulfil these objectives.
For the remainder of 2009, we predict that market neutral strategies will continue to gain renewed interest from hedge fund investors. Investors are looking for investments than can provide their portfolios with diversification as well as having a low correlation to overall market performance, which market neutral managers can provide. Preqin currently holds profiles for 244 investors with an active interest in this sector, including 131 US based institutions, 86 European and 27 based in Asia and Rest of World. For more information, please visit: www.preqin.com/hedge