The current financial volatility, spiraling inflation, market uncertainty, hardline constraints of central banks, and geopolitical conflict in Europe seem to be doing nothing for the hedge fund industry. The assumption that investor involvement in the market might be reduced by all these factors, opting for care and restraint in tenuous times, is proving to be entirely unfounded.
Hedge Fund Research (HFR) recently released a report indicating that institutional investment in the first quarter of 2022 was the highest new capital hedge fund allocation since the second quarter of 2015. Furthermore, the research suggests that all those elements— inflation, increased interest rates, and war in Eastern Europe—are the motivators of this seven-year-high.
Will this hedge fund trend continue for the remainder of 2022? According to a Barclays’s survey from February of this year, the prospects are promising. The continued acceleration of inflation is likely to prompt investors to lower their exposures to cash, passive-equity, and fixed-income; hedge funds are the safe alternative. Preqin, an investment-data firm and hedge-fund specialist, on the other hand, is less hopeful. Looking only at performance, the first quarter of 2022 was among hedge funds’ most dissatisfying quarters.
“Institutional investors are likely to continue increasing their commitment to funds combining effective, volatility-positive, capital preservation with managers offering opportunistic exposure to interest rate and inflation trends, with these effectively complementing existing portfolio holdings and duration. Funds tactically positioned to navigate these multi-asset trends are likely to lead industry performance and growth through mid-2022.”Kenneth J. Heinz, president of HFR