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Hedge funds are well positioned to have greater influence on portfolios in 2022, given the current market environment and investing trends, suggests an outlook blogpost from the Alternative Investment Management Association (AIMA).

The outlook noted this year’s increased demand from institutional investors for hedge funds that offered exposure to both public and private markets, particularly private credit and venture capital.

“The strong performance of private equity and credit in 2021 has made more investors curious about its diversifying potential for their portfolio, leading to increasing allocations to these fund types,” wrote Tom Kehoe, AIMA’s global head of research and communications, in the blogpost.

The investor base for private credit will continue to expand in 2022, including from within private wealth and retail capital, he forecasted.

He also noted that investing in both public and private markets is a way for investors to diversify beyond low-interest bonds and pricey stocks.

“With most forecasts for the coming year predicting continued market volatility as well as the introduction of monetary tightening to curb the threat of higher inflation, this could spell trouble for bond and equity markets and economic growth,” Kehoe wrote.

In such an environment, more investors may look to active management.

“The benefits of investing in alternatives […] will continue to attract capital over the coming year and ultimately could see assets in the hedge fund industry be closer to $5 trillion over the coming 12-18 month,” Kehoe wrote.

He also foresees continued movement away from manager-led products to tailored ones as well as value advisory services.

“The alignment of interests between managers and investors continues to strengthen as investors play a more active role in portfolio construction,” he wrote.

Other forecasted trends included the continued integration of environmental, social and governance considerations within the alternative investment industry and greater hedge fund investment in cryptocurrencies and special purpose acquisition companies.

For full details, read AIMA’s hedge fund industry outlook.