Institutional investors expect hedge fund assets to grow more than 10% in 2013 to a new record of $2.42 trillion, according to Credit Suisse's annual hedge fund investor survey.
While respondents are expected to increase allocations to hedge funds this year, the most sought-after strategies saw some dramatic changes from the year before.
“The scale of the rotations on the strategy-type appetites had some pretty big swings,” said Robert Leonard, managing director and global head of capital services, in a telephone interview. “It really flipped this year … with equity long/short moving to the top of the list and global macro sliding down a bit.”
Long/short equity-general topped this year's survey with a 35% net demand, compared to 12% last year. Emerging markets equity, long/short equity-fundamental and event-driven strategies had the next highest demand, all at 30% or more. Last year's top strategy, global macro, fell to a net 15% demand from 45% last year. CTA/managed futures strategies also saw a 30 percentage point drop in net demand.
Net demand is the percentage of investors increasing or considering increasing allocations minus the percentage of investors decreasing or considering decreasing allocations.
Public pension funds reported the highest average allocation to hedge funds of investors surveyed and expect to increase allocations by 19% this year.
Regionally, emerging markets had the highest ranked net demand at 42%, followed by Asia-Pacific, 35%. North America dropped to the seventh-ranked region from third last year, while developed Europe had by the far the largest jump by 26 percentage points to a 24% net demand.
The biggest risks identified this year were crowded trades, followed by regulatory changes and underperformance. Sovereign default risk and counterparty/credit risk were ranked right behind crowded trades last year, but dropped significantly in this year's survey.
About 550 institutional investors representing $1.03 trillion in hedge fund investments participated in the survey.
