European investors shift towards hedge funds and alternatives

The latest findings from Cerulli Associates suggest that European investors, both retail and institutional, are poised to expand their private asset programmes.

According to the latest findings from the Cerulli Edge—Global Edition, 39% of European asset owners who have previously allocated to hedge funds plan to bolster these allocations over the next year. Furthermore, 36% of the region’s private banks and wealth managers are set to enhance their hedge fund recommendations within the same timeframe.

The research also spotlighted the growing popularity of semi-liquid funds, especially among the high-net-worth (HNW) and ultra-HNW (UHNW) investor brackets.

Interestingly, 50% of UK wealth managers prefer semi-liquid funds for private market investments. Demand is similarly high in countries like Italy and Switzerland.

Of the 207 institutional investors surveyed by Cerulli between December 2022 and January 2023, 39% are contemplating raising their liquid alternative allocations in the upcoming 12 to 24 months. Additionally, over a third (36%) of the 153 private banks and wealth managers surveyed in January 2023 are looking to augment allocations to hedge funds and liquid alternatives.

Institutional investors are diversifying beyond conventional investments, with many opting for non-Ucits and offshore hedge funds. The primary goal is to achieve strategies that permit higher volatility and lesser ESG restrictions for potential increased returns.

Justina Deveikyte, director of European institutional asset management research, Cerulli Associates, commented on the encouraging prospects for hedge funds this year. “The outlook for hedge funds in 2023 is more positive than it has been in recent years, due to rising interest rates and increased volatility. Sophisticated investors recognise this as an opportune moment to capture market discrepancies and asset mispricing.”

While there are lingering concerns of overexposure to private assets due to the “denominator effect,” Deveikyte pointed out that most investors are actually under-allocated. She said, “2022 demonstrated to many that liquid alternatives can help diversify and mitigate risk.”

© 2023 funds europe

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