Two-thirds of global institutional investors (63%) expect annual returns of 10% or higher from fixed income hedge funds.
Currently, 60% are currently investment in hedge funds, and of these, 84% are allocated to fixed-income strategies.
This is according to research from RBC BlueBay Asset Management that found global institutional investors to be quite bullish regarding returns from fixed income hedge funds.
However, fewer than half (47%) reported double digit returns and 52% saw annual fixed income hedge fund performance ranging between 5-9%.
Increasing demand was attributed to historically strong performance (65%) – 84% in Asia and 70% in the US – evolving fee structures (48%) and greater levels of market liquidity (45%).
Furthermore, 55% reported a more positive opinion of these strategies. 61% of institutional investors plan to evolve their exposure to hedge funds and 59% to private credit (e.g. specialist situations, securitised credit, distressed debt) over the next 12 months.
On the other hand, geopolitical tensions (60%), interest rate policies (58%) and highly volatile equity markets (48%) were identified by investors as the three main factors they think will impact fixed income in the next 3-5 years.
Polina Kurdyavko, a hedge fund manager and head of BlueBay Emerging Market Debt, at RBC Global Asset Management, said: “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.”
