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Here are Agecroft Partners' 14th annual predictions for the biggest trends in the hedge fund industry for 2023. These predictions are based on dialogue with more than 2,000 institutional investors located globally and hundreds of hedge fund organizations. They are also predicated upon an economic forecast of continued rising interest rates for at least the 1st half of 2023 and a moderate recession. The hedge fund industry is dynamic and both managers and investors can benefit from anticipating, and preparing for, the changes likely to occur.

1. Increase in expected returns for a diversified hedge fund portfolio. With the risk free rate projected to rise above 4%, from close to 0% last year, investor return expectations for a diversified hedge fund portfolio will also increase from the mid-single digits to 7-9% during a period of continued headwinds for the capital markets. Higher rates will have a dramatic impact on the relative demand for some hedge fund strategies as investors focus on the expected returns above the risk free rate for each strategy driven by beta (the underlying markets the strategy focuses on) and alpha (created through manager skill). This will reduce demand for those high Sharpe Ratio, low volatility strategies whose annualized returns fall below the required return minimum hurdle.

2. Increase in demand for strategies with excess collateral. Most people associate rising interest rates with declining asset values. In fixed......................

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