Hedge Fund Investors Target Low Beta, Crypto in 2022: Survey

With geopolitical upheaval and monetary policy shifts dominating financial markets, a new survey from BNP Paribas’ prime services team – the first since it transitioned from Deutsche Bank – finds that hedge fund investors are looking to multi-strategy and low beta funds to reduce the expected volatility in their portfolios.

The bank’s capital introduction team surveyed 224 allocators from 16 countries (65% of whom were in the Americas) who invest or advise on $1.2 trillion of hedge fund assets. The survey was taken in December, at the end of a year in which BNP says the “average” hedge fund industry was up “high single digits” and the industry saw an estimated $20 billion in net inflows, bringing industry assets to its peak of approximately $4 trillion.

The survey finds an air of optimism among investors with over half of those surveyed planning to grow their hedge fund portfolio in 2022, by an average of $244 million. This investment will come at the expense of long-only equity, credit and fixed income strategies.

Multi-strategy funds are predicted to be the best performing in 2022, after running second in 2021 to event driven, the bank says, it is also expected to see the second highest net inflows behind long/short equity. Quant equity and quant multi-strategy are expected to make a comeback with over one in 10 investors looking to add to the space, these strategies outperformed the overall hedge fund industry last year having underperformed the previous three years.

The survey also finds that investors are swinging their attention away from the Americas, with Asia-Pacific and Europe being the most sought after regions for equity long/short as well as European credit.

Not unexpectedly given the current climate in finance, one third of respondents state they invest in ESG-dedicated strategies and one-fifth are planning to increase this in 2022. A further 23% say that are considering an investment. Diversity and inclusion remains an area of focus with 38% of respondents reporting investing in women and minority-owned managers, up from 21% five years ago. 18% of respondents expect to grow this in 2022 while 20% of respondents are considering investing for the first time.

Inevitably respondents were asked about cryptoassets, 23% say they currently invest in cryptocurrency strategies and 15% expect to increase their investment in 2022. While this may not be music to the ears of crypto enthusiasts it is notable that a further 29% who do not currently invest are looking to do so. In general, BNP says, investors are still research-gathering and are focused on understanding alpha generation opportunities versus crypto beta, how best to position within their portfolio and the correct fee structure.

“With rising rates and geopolitical uncertainty, our report shows that investors are increasing their allocations to low beta hedge funds that can achieve high single-digit returns,” says Marlin Naidoo, global head of capital introduction at BNP Paribas. “The strong net asset inflows we expect to see in 2022 will be met with some volatility as investors reallocate capital from traditional long only funds into hedge funds, move some capital out of hedge funds into private markets as well as rotate capital within the hedge fund space.”