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New research predicts hedge fund allocations to increase dramatically

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Professional investors are predicting dramatic increases in allocations to hedge fund strategies over the next year by institutional investors and wealth managers, according to new research from Managing Partners Group (MPG), the international asset management group. 

Nearly two out of five (36 per cent) believe allocations will increase dramatically with a further 57 per cent predicting a slight increase, MPG’s research with wealth managers and institutional investors who are collectively responsible for GBP258 billion assets under management shows.

A key growth sector over the year ahead will be arbitrage funds which have performed well in the current volatile markets, the study found. Around a third (31 per cent) expect dramatic growth in allocations to arbitrage investment strategies with a further 59 per cent forecasting a slight increase.

Arbitrage strategies where investors simultaneously buy and sell assets in different markets to take advantage of short-term price differences to generate a profit, are proving increasingly popular as the returns can be impressive when multiplied by a large volume, the study found. 

However, the study among 100 professional investors across Switzerland, Germany, Italy, the UK and the US found the main driver of interest in hedge fund strategies is a growing desire to diversify portfolios.

Around 62 per cent cited diversification as the main benefit for clients for investing in hedge funds, the research for MPG, which runs the Vita Nova Hedge Fund focusing on short to medium term investment opportunities, found.

More than half (52 per cent) of professional investors questioned cited the potential for stronger returns than traditional investment strategies while 50 per cent pointed to the opportunities created for hedge funds by ongoing volatility. 

Jeremy Leach, Chief Executive Officer of Managing Partners Group says: “The opportunity for uncorrelated returns to main markets and global macro issues is a key differentiator for hedge funds and it is clear that institutional investors and wealth managers will continue to increase allocations to hedge funds over the year ahead with arbitrage funds in particular seen as a sector that will benefit.”

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