As investors adjust to the prospect of a period of higher-for-longer interest rates, they are expecting hedge funds to generate higher returns, according to a report by Reuters citing a new survey by BNP Paribas.
With interest rates in large developed economies having increased dramatically since late 2021 in a bid to contain rising inflation, the survey reveals that investors now expect hedge funds to return an average of 9.75% annually within an average of 19 months, up from 6.85%.
This is somewhat at odds with hedge fund thinking though, with managers expecting it to take up to 29 months to reach that level of return.
According to BNP Paribas, historical data shows that hedge funds tend to perform better in periods of higher and stable interest rates than they do when rates are lower, although their is sometimes a delay while they “catch up in the rising rate environment,” according to Marlin Naidoo, global head of capital introduction at BNP Paribas. “The question now is whether investors will be willing to wait – because that is where the gap is,” he said.
Most of the hedge fund managers surveyed agreed with their investors about the potential to generate higher returns with 62% predicting they would outperform the risk-free rate by at least 6%.
Nearly half of the investors surveyed meanwhile, said they planned to move money to a different hedge fund strategy to take advantage of the higher rate environment, with systematically traded commodity trading advisors, corporate bond trading and actively managed macroeconomic portfolio trading, the most popular choices.
