Unconventional investments top traditional hedge fund strategies for first time, finds Credit Suisse

The survey found demand is being driven by a desire for customisation and transparency by allocators and other hedge fund investors.

By Joe Parsons

Hedge funds have seen demand to invest more in unconventional products than traditional macro strategies for the first time, a new study by Credit Suisse has found.

The annual survey by Credit Suisse Prime Services discovered that non-traditional investment routes like separately managed accounts (SMA), private credit, co-investing, and longer lock products received higher net demand than the top traditional macro strategy.

Credit Suisse stated it is “the first time we have witnessed this occurrence in our surveys.”

The survey found demand is being driven by a desire for customisation and transparency by allocators, with SMAs being the most employed non-traditional structure amongst investors.

Credit Suisse surveyed 279 institutional investors, including family offices, pension funds and fund of hedge funds, with over $1 trillion in hedge fund investments.

“Investors continue to have increased appetite for hedge funds driven by a variety of factors, including more aligned fees and terms as well as the broader use of customised solutions and non-traditional vehicles, especially managed accounts and co-investments,” said Joseph Gasparro, head of strategic advisory and content, Credit Suisse Capital Services.

The survey showed of the allocators that do not currently invest through non-traditional products, 30% of them intend start allocating through these structures, reflecting how investors now see hedge funds in a new way.

Investors use SMAs to obtain cheaper fees and more control in exchange for committing more money and time to the hedge fund. Co-investing, a process whereby allocators participate in investments alongside their hedge fund managers, have become extremely popular.

According to a report by Bloomberg, Morgan Stanley’s alternative investments unit raised over $500 million in co-investments.

They survey showed hedge funds witnessed the largest positive swing in demand among asset classes, and are now on par as the top investor preference going in the second half of the year.