Key Takeaways
- • The average hedge fund delivered a 4.21% return in 2014, underperforming broader equity and fixed-income benchmarks, yet allocators continue to advocate for hedge fund exposure in 2015 portfolios citing valuation concerns in stocks and bonds.
- • Institutional allocators including SkyBridge Capital ($12.5 billion AUM) identify three preferred hedge fund strategies for 2015: market neutral funds, event-driven strategies benefiting from M&A activity, and macro funds positioned on macroeconomic trends.
- • Event-driven managers are positioned as primary beneficiaries of continued corporate dealmaking, supported by strong U.S. corporate balance sheets and accretive merger and acquisition pipelines that allocators expect to persist throughout 2015.
- • Top hedge fund allocators including Goldman Sachs, SkyBridge Capital, and GAM have issued 2015 outlooks recommending hedge fund allocation despite sector-wide underperformance, signaling institutional conviction in strategy-specific rather than broad hedge fund exposure.
Summary
Hedge fund allocators are making a renewed case for hedge fund exposure in 2015 despite lackluster sector-wide performance, citing macroeconomic headwinds in traditional asset classes. The average hedge fund returned 4.21% in 2014 according to HedgeFund Intelligence—a result that underperformed both equity and fixed-income returns. However, institutional investors argue that the current investment landscape, characterized by elevated stock valuations, depressed bond yields, and minimal cash returns, creates a rationale for hedge fund diversification.
Robert Duggan, portfolio manager at SkyBridge Capital ($12.5 billion in assets), articulated this positioning in a white paper released in January 2015 titled "Why Investors Should Allocate to Hedge Funds." Duggan stated that "hedge funds going forward make a lot of sense in the portfolio given how equities and bonds have traded over the last several years," signaling that allocators are distinguishing between sector-level performance and strategy-specific opportunity.
Institutional allocators have identified three core hedge fund strategies as most attractive for 2015. First, market neutral funds—which maintain roughly balanced long and short equity exposures—appeal to managers seeking non-directional returns insulated from broad market movements. Second, event-driven strategies are positioned to capitalize on corporate transformation activities including mergers, acquisitions, and leadership transitions. Third, macro funds betting on macroeconomic trends across equities, currencies, bonds, and other asset classes are viewed favorably for navigating an uncertain 2015 environment.
SkyBridge Capital has signaled highest conviction in event-driven managers, based on fundamental strength in U.S. corporate balance sheets and an expected continuation of accretive dealmaking. Duggan noted that "corporate balance sheets, particularly in the U.S., remain very strong and we continue to see very accretive deals being done which is a positive and provides significant opportunity for those types of managers." This assessment reflects allocator confidence in M&A momentum as a structural driver for event-driven returns independent of overall market performance. Top institutional allocators including Goldman Sachs and GAM have similarly issued 2015 outlooks emphasizing strategy-specific hedge fund allocation rather than broad sector exposure.
Robert Duggan, portfolio manager at SkyBridge Capital ($12.5 billion in assets), articulated this positioning in a white paper released in January 2015 titled "Why Investors Should Allocate to Hedge Funds." Duggan stated that "hedge funds going forward make a lot of sense in the portfolio given how equities and bonds have traded over the last several years," signaling that allocators are distinguishing between sector-level performance and strategy-specific opportunity.
Institutional allocators have identified three core hedge fund strategies as most attractive for 2015. First, market neutral funds—which maintain roughly balanced long and short equity exposures—appeal to managers seeking non-directional returns insulated from broad market movements. Second, event-driven strategies are positioned to capitalize on corporate transformation activities including mergers, acquisitions, and leadership transitions. Third, macro funds betting on macroeconomic trends across equities, currencies, bonds, and other asset classes are viewed favorably for navigating an uncertain 2015 environment.
SkyBridge Capital has signaled highest conviction in event-driven managers, based on fundamental strength in U.S. corporate balance sheets and an expected continuation of accretive dealmaking. Duggan noted that "corporate balance sheets, particularly in the U.S., remain very strong and we continue to see very accretive deals being done which is a positive and provides significant opportunity for those types of managers." This assessment reflects allocator confidence in M&A momentum as a structural driver for event-driven returns independent of overall market performance. Top institutional allocators including Goldman Sachs and GAM have similarly issued 2015 outlooks emphasizing strategy-specific hedge fund allocation rather than broad sector exposure.
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