Key Takeaways
- • Hedge funds averaged a 4.21 percent return in 2014, underperforming equity and bond markets, yet institutional allocators continue to recommend the asset class for 2015 portfolios citing elevated equity valuations and compressed bond yields.
- • Institutional investors—including SkyBridge Capital ($12.5 billion AUM), Goldman Sachs, and GAM—identify three preferred hedge fund strategies for 2015: market neutral funds, event-driven strategies benefiting from M&A activity, and macroeconomic-focused funds.
- • SkyBridge Capital expresses highest conviction in event-driven managers, citing strong U.S. corporate balance sheets and continued accretive dealmaking as drivers of manager alpha opportunities.
- • Hedge fund proponents argue the asset class provides portfolio diversification benefits in an environment where traditional equity and fixed-income returns appear constrained.
Summary
Despite delivering a modest 4.21 percent average return in 2014 according to HedgeFund Intelligence, hedge funds remain a focal point for institutional investor allocations heading into 2015. Major allocators including SkyBridge Capital, Goldman Sachs, and GAM are actively pitching hedge fund exposure to their clients, framing the strategy as a hedge against what they perceive as stretched valuations in equities and historically low yields in fixed income markets.
Robert Duggan, portfolio manager at $12.5 billion SkyBridge Capital, articulated this thesis in a recently published white paper titled "Why Investors Should Allocate to Hedge Funds," emphasizing that hedge fund exposure makes strategic sense given the multi-year performance trajectory of equities and bonds. The core argument centers on the relative risk-reward environment: with stock prices elevated and bond yields compressed near historic lows, cash positions generating minimal returns, hedge funds offer an alternative for return generation.
Among hedge fund strategies, institutional allocators have identified three primary areas of focus for 2015. Market neutral funds—which maintain balanced long and short equity exposure to profit from security selection regardless of overall market direction—rank as a preferred category. Event-driven strategies, which capitalize on corporate restructurings, mergers, acquisitions, and leadership changes, represent a second priority. Macroeconomic-focused ("macro") funds that deploy capital across multiple asset classes including equities, currencies, and bonds to exploit broad economic trends constitute the third category.
SkyBridge Capital has assigned its highest conviction rating to event-driven managers, citing robust U.S. corporate balance sheets and the continuation of accretive deal activity as catalysts for manager outperformance. Duggan highlighted that the strength of corporate fundamentals and the quality of M&A transactions being executed provide substantial opportunity for event-driven specialists to generate alpha in the year ahead. This positioning reflects a broader institutional view that corporate activity remains a reliable source of hedge fund returns in a market environment characterized by monetary policy normalization and uneven equity fundamentals.
Robert Duggan, portfolio manager at $12.5 billion SkyBridge Capital, articulated this thesis in a recently published white paper titled "Why Investors Should Allocate to Hedge Funds," emphasizing that hedge fund exposure makes strategic sense given the multi-year performance trajectory of equities and bonds. The core argument centers on the relative risk-reward environment: with stock prices elevated and bond yields compressed near historic lows, cash positions generating minimal returns, hedge funds offer an alternative for return generation.
Among hedge fund strategies, institutional allocators have identified three primary areas of focus for 2015. Market neutral funds—which maintain balanced long and short equity exposure to profit from security selection regardless of overall market direction—rank as a preferred category. Event-driven strategies, which capitalize on corporate restructurings, mergers, acquisitions, and leadership changes, represent a second priority. Macroeconomic-focused ("macro") funds that deploy capital across multiple asset classes including equities, currencies, and bonds to exploit broad economic trends constitute the third category.
SkyBridge Capital has assigned its highest conviction rating to event-driven managers, citing robust U.S. corporate balance sheets and the continuation of accretive deal activity as catalysts for manager outperformance. Duggan highlighted that the strength of corporate fundamentals and the quality of M&A transactions being executed provide substantial opportunity for event-driven specialists to generate alpha in the year ahead. This positioning reflects a broader institutional view that corporate activity remains a reliable source of hedge fund returns in a market environment characterized by monetary policy normalization and uneven equity fundamentals.
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