Hedge Fund Outlook 2022: Inflows rising amid inflation
15 Feb 2022
Hedge Fund AUM grew to an all-time high of nearly $4 trillion in Q3’21, driven by returns over more than 10% and inflows totaling $24 billion. These results mark the third consecutive year of double-digit growth. Based on their latest investor survey, our Strategic Consulting team expect this strong momentum to continue building as investors appear more bullish across all hedge fund strategies.
15 Feb 2022
To learn more about the outlook for the hedge fund industry in 2022, please ask your Barclays Corporate and Investment Bank representative for the 2022 Global Hedge Fund Industry Outlook and Trends report, or contact the Strategic Consulting team.
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1. Investors seek to reduce cash, passive equity and fixed income positions
Largely in response to the highest inflation in 30 years, the consensus view from our survey of 288 investors, who represent about 15% of the Hedge Fund industry’s assets under management, is to increase exposure to Hedge Funds and illiquid asset classes.
2022 investor survey by the numbers
288 firms, representing…
$6 trillion in total assets
$630 billion in hedge fund assets
15% of hedge fund industry
On a net basis, investors plan to reduce their exposure to cash (12%), long only fixed income (17%), and passive equity (8%). Conversely, 35% indicated plans to increase their exposure to Hedge Funds.
All investor types say they plan to increase exposure to alternatives. Pensions are mostly interested in Real Estate / Infrastructure and Private Credit, followed by Hedge Funds. Endowments & Foundations, Family Offices and Private Banks appear most interested in Private Equity and Hedge Funds.
Across the asset classes, Active Equity is had the most divergent views from investors – pensions plan to reduce while Family Offices and Endowments & Foundations plan to increase their exposure in 2022.
2. Investors even more bullish on hedge funds in 2022
Our survey shows 70% of investors’ Hedge Fund portfolios met or exceeded their target returns in 2021. Furthermore, Hedge Funds generated alpha of 2.4%, which is above historical averages and marks the second consecutive year of positive alpha generation across the industry.
Not surprisingly, investors appear even more bullish across most Hedge Fund strategies than they were last year. Across our sample, they plan to allocate $265 million to Hedge Funds in 2022 on average. They plan to finance about 70% of these investments through redemptions of existing allocations. Overall, this will result in a net increase in their Hedge Fund exposure of about 3%.
Private Banks are the most bullish with plans to allocate about $305 million and redeem only $65 million.
Such bullish sentiment bodes well for Hedge Funds seeking new clients. Investors said they planned to split allocations between new and existing relationships in 2022, with about 60% going to new relationships.
3. Investors increasingly turning to hedge funds for solutions
We expect Hedge Funds will receive about $30-50 billion in net allocations in 2022, marking growth of about 1% for the industry overall. From a gross perspective, we expect investors to make allocations of $400-450 billion in 2022, which is more than the levels reached in the past couple years.
Where are the investment dollars flowing? Investor interest is strong across all Hedge Fund strategies, but of particular interest are Sector Equity, Global Macro, Credit Long/Short, Multi-Strategy and Market Neutral Equity.
Investors are also seeking non-traditional equity and credit, ESG and even crypto-focused hedge fund offerings. They are especially bullish on multi-manager platforms, which have grown more than 80% since 2017, according to our sample.
The industry survey suggests that the momentum achieved over the past year is still building and bodes well for healthy performance from the hedge fund industry in 2022. An era of solid returns, rising inflows and growing assets under management appears likely to continue for the foreseeable future.
To learn more about the outlook for the hedge fund industry in 2022, please ask your Barclays Investment Bank representative for the 2022 Global Hedge Fund Industry Outlook and Trends report, or contact the Strategic Consulting team at firstname.lastname@example.org.