European demand for hedge funds remains firm

Hedge fundInvestment consultants in London are looking for hedge fund strategies that diversify equity beta, while European pension funds are looking for hedge funds to give them niche investments, market research from Deutsche Bank reveals.

London-based consultants have also developed a renewed interest for smaller and emerging managers. The trend is driven by their clients, the bank says in a report.

Despite high fees and recent underperformance, European pension funds still say the alternative investment industry adds value to portfolio management and Deutsche Bank says many pension funds want to form strategic partnerships with hedge fund managers instead of traditionally allocating to commingled funds.

Meanwhile, appetite for hedge funds in Europe “continued its positive momentum in September”. This is despite a drop in performance for hedge funds recently.

The median fund lost 0.69% in September – but hedge funds still beat the MSCI World index, which was down 3.86%, and the S&P 500, which was down 2.64%, says Deutsche Bank’s Global Prime Finance Monthly Hedge Fund Trends.

Market neutral and credit strategies are the top performing hedge fund strategies year to date at the end of September

Median fund performance for all strategies in the year to date at the end of September was 0.90% and this return again beat major global indices. Market neutral and credit rank as the top performing strategies.

Despite beating major indices, hedge funds are going through their longest period of decline since the financial crisis, HFR, a hedge fund research firm, recently said.

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