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Matthias Knab, Opalesque for New Managers:

The hedge fund industry is dynamic, comprising numerous strategies that attract varying degrees of interest over time. Various factors, such as capital market valuations, economic growth expectations, inflation rates, market liquidity, and risk tolerance, significantly influence the demand for each strategy. Industry professionals spend a great deal of time analyzing these variables in order to identify which strategies are expected to offer the best opportunities for out-performance. One way to measure this is to ascertain which strategies are attracting current investor interest.

In this article, we compare and analyze data submitted by investors from Agecroft Partners' November 2022 cap intro event with data recently compiled from the first 300 investors slated to attend the upcoming Gaining the Edge - Global Virtual Cap Intro 2024 event taking place from June 17th to 28th. During registration, investors complete a detailed survey outlining their preferences regarding strategy types and managers that are of current interest. This provides broad insights into both overall demand for each strategy as well as evolving trends in demand. Presented below is a comparative analysis of survey findings, accompanied by commentary derived from feedback received from thousands of investors globally.

Long/short equity captured the interest of 65% of 2024 respondents, the largest share among all strategies. This slight uptick from 2022 (64%) indicates the continued positive change in investor sentiment regarding fund managers' abilities to generate alpha via stock selection. It may also be attributed to higher equity valuations with the current bull market extending through Q1 of 2024, propelled largely by a small number of mega cap growth stocks. This rally has created wide valuation disparities between growth and value stocks along with large and small/mid-cap stocks. Many investors believe both are great environments for active managers. We expect increased demand for funds focused on value or small/mid-cap companies.

The three strategies that saw the largest increase in demand, included equity market neutral, fixed income/long short credit, and other diversifying strategies:

1. Equity market neutral increased by 16% due to investor concerns about equity valuations and favorable conditions for stock selection.
2. Fixed Income/long short credit increased by 11% due to significantly higher interest rates.
3. Other diversifying strategies increased by 26% which demonstrates that investors are broadly open to any strategy that will help diversify their portfolio away from the capital markets.

Strategies that saw the biggest decline in demand include Cleantech/ESG/Impact Investing and Cryptocurrencies. Both saw a complete reversal compared to their historical trends, but should be interpreted differently based on real-world investment flows.

1. Cleantech/ESG/Impact Investing enjoyed peak interest at the 2021 event at 48%, but declined to 38% in 2022 and 19% for 2024. The strategy drew significant attention from investors, but has not yet generated the asset flows that were expected. The criteria that determine what qualifies as an ESG strategy are broad and vary from one investor to the next. We expect ESG criteria to become more standardized across the industry over time, which should aid managers in the space.
2. Digital Asset and Cryptocurrency strategies saw a sharp decline from 41% in 2022 to 24% in 2024. Despite the decline, we believe this is a strategy that could see increased asset flows as the strategy has evolved from an educational product to one that allocators are giving serious consideration. The asset class continues to be viewed as less exotic/speculative and more institutional. Beyond the staggering returns, several factors are contributing to the increased recognition and demand, including a broader understanding of block chain technology and an increase in the size of the industry.

Since average pension fund allocations tend to be multiple times larger than those from other types of investors, their strategy preference has a disproportionate impact on industry flows. The data we shared from the surveys gave each investor equal weighting. Practically speaking, strategies with higher interest from pension funds, such as CTAs and reinsurance, will likely see much higher asset flows than the survey data would indicate. For CTAs, demand tends to be higher for short term trading oriented strategies versus medium-term trend, where many pensions already have exposure. Reinsurance is seeing increased demand from large pension funds due higher prices across the industry and its low correlation to the capital makers.

Other strategies showing high investor demand include Global Macro (55%), Quant (55%) and Multi-Strat (55%). A full list of results are posted in the chart below.

In addition to indicating strategies of interest, investors were also asked to indicate the minimum fund size to which they would consider making an allocation. Of the survey respondents, 28% would consider new fund launches with 52% open to funds with less than $100 million and only 1% requiring a fund to be $1 billion or larger. These results indicate that the minimum asset requirement for various investor types has reduced over time, especially in the past several years. This may be, in part, attributable to the significant investment large pension funds have made into improving their internal processes. A majority have built out their research staffs and, in so doing, have increased their confidence and comfortability with investing in smaller and emerging managers.

Another high-level trend includes the divergence, by investor type, in how hedge fund strategies are considered in the portfolio allocation process. Specifically, many pension funds have evolved their hedge fund allocation strategy from outperforming hedge fund indices to building portfolios of diversifying strategies. This has narrowed their interest across strategies to a focus on those with low correlation to the capital markets.

As we head into Q2 of 2024, this survey should provide good guidance on the strategies to which assets will flow. Additionally, as most investors and managers have become comfortable using Zoom and other virtual meeting providers as part of their ongoing due diligence process, we expect a high percent of meetings to take place virtually, continued acceptance of remote virtual work, and increased allocations to managers located outside of traditional hedge fund cities.

Gaining the Edge - Global Virtual Cap Intro 2024 is expected to be one of the largest virtual cap intro events in the industry and is complimentary for approved investors.

Exclusive Registration Benefits For Investors:

1. Two Weeks of Optimized Networking: Benefit from meaningful interactions without the fatigue of travel and crammed back-to-back meetings. Enjoy high-quality, flexible scheduling over two weeks, with a 24/7 open meeting scheduler accommodating global time zones across North America, Europe, the Middle East, and Asia.
2. Diverse and Unique Range of Participating Managers: Virtual format, lower price point and no need for physical travel attract a wider range of managers. Low overlap of managers and investors with other cap intro events makes the event distinct and highly complementary to other independent and prime broker-sponsored capital introductions.
3. 100% Self-Directed and Flexible: You decide when, for how long, which and how many managers to meet (Agecroft suggests investors to book a minimum of just 5 meetings).

Investors register here: https://gainingtheedge.wufoo.com/forms/z5fxojr18lq3k2/

Exclusive Registration Benefits For Managers: Grab Your $3,478 Goodie Bag

1. Special Pricing: Register for just $4,975 with no hidden costs - a steal considering the absence of travel, hotel, or yearly membership fees.
2. BONUS Gift 1: "Asset Raising" Digital Masterclass by Opalesque ($2,999 Value):Elevate your asset-raising game with:
   • 16 Video Modules spanning 3 hours and 33 minutes
   • 42 Workbook Pages
   • 29 Unique Guerrilla Tactics (shortcuts to success)
   • Testimonials: "Secured three times more meetings and doubled closing rates."
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   • What you'll learn: Detailed overview of all 16 video modules: Download PDF
3. BONUS Gift 2: One-Year Subscription to NEW MANAGERS by Opalesque ($200 Value): Since 2012, a monthly publication with full archive access.
4. BONUS Gift 3: One-Year Subscription to Alternative Market Briefing by Opalesque ($279 Value): Daily insights since 2003, with access to an archive of over 400,000 articles.

Why GAINING THE EDGE Stands Apart:

• Record-Breaking Attendance: The previous virtual cap intro event attracted over 1,900 registrations, featuring a diverse and unique range of managers, distinct from other large independent and prime broker-sponsored capital introductions.
• Expert-Led Interactive Panels: Engage in over 10 hour-long Interactive Panel Style Discussions. Gain insights from top decision-makers in alternative investments, including pension funds, endowments, foundations, institutional consultants, family offices, and fund of funds.
• Alternative Investment Industry Leading Conference Organizer Since 2013: From 2013 to 2016, Agecroft Partners was a co-producer of Hedgeopolis, one of the top hedge fund conferences in the industry. From 2016 to 2020 sold out 6 conferences in a row with over 2,000 registrations while its most recent cap intro events ranked as the largest virtual events in the history of the alternative investment industry. In addition, over 32,000 professionals subscribe to their Hedge Fund Industry Insight Newsletter.
• Philanthropy: A percent of profits to be donated to charities that benefit at-risk youth. To date, GAINING THE EDGE LLC and Agecroft Partners have donated over $3 million dollars to these organizations.

Act now: Bonus gifts valued at $3,478 only available to registered managers of the 2024 GAINING THE EDGE conference.

Secure your spot here: GAINING THE EDGE Registration for managers..

Investors register here: https://gainingtheedge.wufoo.com/forms/z5fxojr18lq3k2/