#United States #Minneapolis #fixed income #Hedge Funds #RBC Global

Global Institutional Investors Show Strong Interest in Fixed Income Hedge Funds

In a notable shift in investment sentiment, recent research commissioned by RBC Global Asset Management indicates that institutional investors worldwide are becoming increasingly optimistic about the potential returns from fixed income hedge funds. The survey revealed that an impressive 63% of global institutional investors anticipate annual returns of 10% or more from these investment vehicles.

However, it's worth noting that the current performance does not fully align with these expectations. Among the surveyed investors, less than half—specifically 47%—reported having achieved double-digit returns from their fixed income hedge fund investments. The remaining investors indicated that their annual returns fell between 5% and 9%.

As the investment landscape evolves, fixed income hedge funds are transitioning into a mainstream choice for institutional investors keen on capturing higher yields while maintaining liquidity. Approximately 60% of respondents confirmed they are currently invested in hedge funds, with a substantial 84% of these funds directed toward fixed-income strategies.

This surge in interest can be attributed to several factors that drive demand for fixed income hedge fund strategies. A significant 65% of institutional investors cited historically strong financial performance as a compelling reason, particularly in Asia where this figure climbs to 84% and in the U.S. it stands at 70%. Furthermore, evolving fee structures (48%) and improved levels of market liquidity (45%) are contributing to the favorable outlook on these strategies.

The research, part of a broader study titled 'Shifting Strategies: How Institutions Are Embracing Fixed Income Hedge Funds,' surveyed 450 senior investment decision-makers from asset-owning entities across the U.S., Europe, and Asia, managing assets ranging from $5 billion to over $100 billion. The survey was conducted in November 2024 and aimed to explore the perceptions and intentions of institutional investors concerning alternative investment strategies, which include private credit and multi-strategy credit.

Interestingly, the findings show that 55% of institutional investors have a more positive outlook on hedge funds than before. When questioned about their future allocations to hedge funds, 36% of investors plan to increase their funding through new inflows, while 25% are looking to reduce their investments in other alternative strategies.

Polina Kurdyavko, a hedge fund manager at RBC Global Asset Management, offered insights into the current market conditions, stating, "We believe we are in the golden age for fixed income hedge funds. Geopolitical tensions and interest rate policies remain major concerns for investors, and the resulting market uncertainty is likely to induce volatility. Funds that can operate effectively in both bullish and bearish conditions are well-positioned to exploit price discrepancies and inefficiencies in the market, thereby yielding positive returns regardless of market fluctuations."

Key Insights:

• - Impact Factors: Investors pinpoint three primary factors anticipated to influence fixed income returns over the next 3-5 years: geopolitical tensions (60%), interest rate policies (58%), and the volatility of equity markets (48%).
• - Investment Criteria: The two crucial elements for investors evaluating fixed income hedge funds include the asset class (69%) and return predictability/volatility (59%).
• - High-Yield Potential: Looking forward, 42% of investors intend to explore higher-yield assets driven by macroeconomic conditions and expectations for upcoming years, with 48% aiming for target returns between 10% and 19%.
• - Future Allocations: A significant majority, 61%, plan to adjust their hedge fund exposure, with 59% open to increasing their investment in private credit strategies within the next year.

For those interested in the detailed findings and comprehensive data from the survey, further information is available at the RBC institutional website.

About RBC Global Asset Management

RBC Global Asset Management operates as the asset management arm of the Royal Bank of Canada. Specializing in delivering global investment management services, RBC GAM serves institutional, high-net-worth, and individual investors through a diverse array of investment products, including separate accounts, mutual funds, hedge funds, and exchange-traded funds. The organization manages approximately CAD 680 billion in assets, staffed by a dedicated team of around 1,600 professionals across Canada, the U.S., Europe, and Asia.

RBC stands as Canada’s largest bank, renowned for its commitment to innovation and exceptional client experiences across various markets. Their community engagement is significant, with various initiatives promoting investments and volunteerism aimed at fostering social goodwill.