A new global survey from RBC Global Asset Management gathered insights from 450 of the largest institutional investors in the world, and findings show that sentiment towards fixed income hedge funds is improving. This is fueled by these funds’ strong returns, competitive fees, and enhanced liquidity. But investors still have some reservations, and assets under management (AUM) and a long track record are critical.
Key finding 1:
Growing confidence in fixed income hedge funds has led to mainstream adoption
Global institutional investors’ appetite for hedge funds is growing, with the biggest demand in fixed income hedge fund strategies. Notably, investors are seven times more likely to increase hedge fund exposure than decrease it.
60%
allocate to hedge funds
84%
of hedge fund investors allocate to fixed income hedge funds
61%
of hedge fund investors expect to increase their allocation in the next 12 months
25%
looking to fund new allocations to hedge funds from other alternatives
Expected changes to fixed income exposures over the next 12 months.
Key finding 2:
Institutional investors bullish about the return potential from fixed income hedge funds
Future return expectations remain strong for fixed income hedge funds, despite a mismatch between expected and actual returns. The positive sentiment is underpinned by strong performance, flexible fees and increased liquidity.
63%
expect fixed income hedge funds to deliver 10%+ returns per annum
52%
experienced fixed income hedge fund performance of 5-9% per annum
55%
more positive on the outlook of fixed income hedge funds
65%
cited strong performance as a reason for the positive sentiment
The evolution of views on hedge funds over the past 3-5 years.
Key finding 3:
Institutional investors favor established hedge fund strategies with strong track records
The asset class and returns predictability are important when considering allocations. Smaller fund sizes and lack of track record can be deal-breakers when choosing managers.
61%
rank AUM as a priority when selecting a hedge fund manager
47%
only consider hedge funds with at least $100m in assets under management
58%
not invested in or looking to consider a first-time hedge fund
Important criteria when choosing a hedge fund manager.
Background
Just after the November 2024 US presidential election, RBC Global Asset Management gathered insights from 450 senior investment decision-makers across the US, Europe, and Asia who manage assets ranging from US$5 billion to more than US$100 billion.
The purpose was to provide the industry with an overview of the trends and priorities that are shaping investor sentiment and decision-making of some of the largest institutional investors in the world, with a focus on alternatives forms of fixed income.
What is driving the positive sentiment towards alternative fixed income strategies?
Since the global financial crisis, the landscape for absolute return funds has undergone significant changes, influencing investor attitudes. Polina Kurdyavko, Head of BlueBay Emerging Markets, discusses the resurgence of these funds and the strategic approaches used to navigate market volatility.
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