In the hedge fund market, customized products are growing in popularity, leading institutional investors to optimize existing relationships and strengthen partnerships with a more concentrated group of managers, according to a survey by Credit Suisse Group.
The survey, which polled 310 global institutional investors, found 58 per cent of allocations made over the last 12 to 18 months were to alternative structures, particularly bespoke managed accounts and co-investments. As a result, institutional portfolios are consolidating their hedge funds, with the number down to an average of 31 managers, representing a 35 per cent drop since 2009.
“Allocators continue to recalibrate how they employ hedge funds,” said Joseph Gasparro, head of content for Credit Suisse Capital Services Americas, in a press release. “Preference is shifting to customized solutions through managed accounts and co-investments that tailor fit-specific investment objectives, exposures and risk parameters. At the same time, investors are increasingly looking at allocations through the lens of their overall portfolio, converging hedge funds with traditional asset classes.”
The survey also found 42 per cent of investors are classifying hedge funds as an underlying asset class of their own rather than as part of the alternatives category. Further, the majority (89 per cent) of investors used the capital they redeemed from hedge fund investments to allocate to other hedge funds in 2018.
“Investors are staying the course on their hedge fund exposure,” said Melissa Toma, co-head of Credit Suisse Capital Services Americas. “It is important to highlight they are focused on re-underwriting their existing portfolios; reducing the overall number of positions and sizing up where they have conviction. Investors are focused on growing relationships with managers who have differentiated expertise, strong risk management skills and a clear track record of being accretive to an investor’s portfolio.”