Asian institutional investors plan to increase allocations to global macro, relative-value credit and fixed-income arbitrage hedge funds, but hold a dimmer view on EM-related strategies, a survey finds.
Globally, 63% of institutions were active in allocating to hedge funds in the second quarter, with 85% planning to invest in the asset class in Q3, notes the Credit Suisse mid-year Hedge Fund Investor Survey. It polled 157 institutional investors in Asia (33), the US (86) and Europe (38).
Asian investors were most interested in macro hedge funds, with 66% intending to raise their exposure to the strategy. Relative value credit is also viewed favourably, with 62% planning to increase their allocation to such funds, although 10% said they would lower their exposure.
Meanwhile, fixed-income arbitrage is set to receive an investment boost by 55% of the region’s institutions, as 7% lower their allocations to the strategy.
The three strategies were also the most popular among investors in the US and Europe. The uniform popularity among the top three most favoured strategies is a result of good performance figures.
“[While] we do say that investors don’t performance chase, ultimately the opportunities in the market dictate what investors gravitate to in terms of strategy preferences,” says Andra Ofosu, a member of the capital services team at Credit Suisse in London.
Where Asian institutions diverge from their Western peers is in having a more bearish outlook on emerging markets-related hedge funds.
Emerging markets equity hedge funds are expected to see a 0% net demand from Asian investors, with 21% indicating they will increase their allocation to the strategy, with an equal percentage decreasing exposure.
Similarly, there is 0% net demand for emerging markets credit hedge funds, with the same number of Asian institutions planning to increase their allocation to the strategy as there are those who plan to reduce their investment (10%).
In contrast, emerging markets equity has 20% net demand among US investors and 8% in Europe, with similar numbers for emerging markets credit which has 14% net demand in the US and 8% in Europe.
One reason for the divergent outlook towards EMs is the perceived need among investors to diversify their portfolios on a geographic basis, says Ofosu.
"If you’re an investor based in London, you’re right at the heart of the European crisis, while those in New York are at the heart of US fiscal problems. The tendency is to view emerging markets as fiscally stronger and hence that they might present better opportunity sets,” she notes.
“Investors based in the emerging market regions may have a different view of what the opportunity sets in their regions really are.”
A recent Eurekahedge report notes that managers in Asia-Pacific, including Japan, have seen nearly $1 billion of net asset flows in the first six months of this year “as investors continue to look to the region to deliver growth”.