Hedge fund demand is on its way up, JPMorgan survey finds

[NEW YORK] Institutional investors are flocking to hedge funds this year, even after a turbulent 2018 marked by poor performance and market volatility.

Demand for hedge funds is rising as investors such as endowments and pensions search for market-beating returns and diversification, a JPMorgan Chase & Co survey found. About a third of respondents plan to boost allocations, up from 15 per cent in 2018. Just 13 per cent expect a decrease, while 55 per cent said they plan to maintain current allocations.

"Hedge funds are positioned well and investors are becoming more aware of the value propositions they can offer in certain markets," said Michael Monforth, global head of capital advisory at JPMorgan. "It's a diversification play."

The industry took its biggest annual loss last year since 2011, declining 4.8 per cent on a fund-weighted basis, according to Hedge Fund Research Inc. Managers were hurt by volatility that trampled markets, and hedge funds saw US$33.5 billion in outflows. Startups fell to the lowest level since 2000 as funds struggled to raise capital.

Investors remain concerned about hedge fund crowding, style drift and transparency, according to the survey. JPMorgan said it polled 227 investors with about US$706 billion in hedge fund assets for its annual Institutional Investor Survey.

Funds including Michael Gelband's ExodusPoint Capital Management are looking to Asia to expand. Almost half of the investors surveyed by JPMorgan plan to increase exposure to the region. Macroeconomic and credit strategies are also poised to draw client allocations this year. Fundamental long-short equity, event-driven and managed-futures strategies are expected to see outflows, the survey found.

"Asia is a continuously opening market and there will be more funds going in there to take advantage of potential asset-price dislocations and opportunities," Mr Monforth said.

"For some markets, unwinding of QE or a global slowdown is akin to a rock band losing its lead singer: Investors are looking to alternatives."

BLOOMBERG