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Shifting Strategies:
How institutions are embracing
fixed income hedge funds
A new global research report of 450 of the largest institutional investors in the world shows that sentiment towards fixed income hedge funds is improving. This is fuelled by these funds’ strong returns, competitive fees, and enhanced liquidity. But investors still have some reservations, and assets under management (AUM) and a long track record are critical.
Key finding 1:
Growing confidence in fixed income hedge funds has led to mainstream adoption
Global institutional investors’ appetite for hedge funds is growing, with the biggest demand in fixed income hedge fund strategies. Notably, investors are seven times more likely to increase hedge fund exposure than decrease it.
Expected changes to fixed income exposures over the next 12 months.
Key finding 2:
Institutional investors bullish about the return potential from fixed income hedge funds
Future return expectations remain strong for fixed income hedge funds, despite a mismatch between expected and actual returns. The positive sentiment is underpinned by strong performance, flexible fees and increased liquidity.
The evolution of views on hedge funds over the past 3-5 years.
Key finding 3:
Institutional investors favour established hedge fund strategies with strong track records
The asset class and returns predictability are important when considering allocations. Smaller fund sizes and lack of track record can be deal-breakers when choosing managers.
Important criteria when choosing a hedge fund manager.
Background
Just after the November 2024 US presidential election, RBC Global Asset Management gathered insights from 450 senior investment decision-makers across the US, Europe, and Asia who manage assets of between US$5 billion and more than US$100 billion.
The purpose was to provide the industry with an overview of the trends and priorities that are shaping investor sentiment and decision-making of some of the largest institutional investors in the world, with a focus on alternatives forms of fixed income.
Source: RBC Global Asset Management as at December 2024, unless otherwise stated.
“We believe we are in the golden age for fixed income hedge funds. Geopolitical tensions and interest rate policies continue to be top of mind for investors, and the resulting uncertainty is likely to create volatility in the markets. We believe funds that can play the markets from both the long and short side are particularly well placed to capitalise on the mis-pricings and inefficiencies created by this volatility to deliver positive returns, regardless of the market direction.”
Polina Kurdyavko
Head of BlueBay Emerging Markets
Further reading
Private credit opportunities in emerging markets
We discuss how a selective approach to high quality EM private debt investments can enhance returns, while reducing risk and dampening volatility.
Stress and distress in the European mid-market: where we are today
With many European mid-market companies and sectors facing stress and distress, we look at the special situations investment opportunity set.
Emerging markets illiquid credit: why now
We discuss how the private credit EM universe offers a multitude of opportunities with superior credit and commercial metrics to developed markets.
A heritage rooted in alternative investments
The BlueBay Hedge Fund and Illiquid platform provides clients access to emerging trends and dislocation within global markets through vehicles optimised to manage risks and execute on the behalf of our clients.
Learn more about our full range of fixed income alternative strategies now.
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