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The research, conducted in Q4 2020, surveyed 65 investors (with US$3.8 trillion in total investor assets, US$156 billion of which is invested in hedge funds) and senior IR and marketing professionals from 135 hedge fund managers to discover the changes allocators plan to their portfolios and how hedge fund managers plan to raise assets in H1 2021:

• 45% of investors plan to increase their allocation to hedge funds, with more than half maintaining their allocation to other alternative investments.

• The expectation of even stronger returns is the principle reason (64%) for this increase, followed by equity valuation concerns (39%). Meanwhile, 32% of investors regard hedge funds as a possible long-term replacement for fixed income due to the continuing low rate environment.

• A quant revival is expected in 2021 with systematic firms most likely among hedge fund strategies to see an increase in allocations in H1. 31% of investors are considering allocations to quant strategies, closely followed by arbitrage/relative value (29%) and global macro (25%).

• Risk management is investors' top priority in H1 2021 (97%), which they regard hedge funds as being best placed to deliver among alternative asset classes.

• Investors are still prepared to pay higher fees, provided strong risk-adjusted returns are delivered.

• Hedge fund managers are increasingly broadening their offering to include long-only and private markets products, with over a quarter of managers already offering or planning to offer private credit funds.

• When it comes to winning new business globally, hedge fund IRs are on the hunt for investors located in the US with efforts focused on endowments, single and multi-family offices.

Referrals from existing clients (38%) are expected to provide the most promising new investor leads for hedge fund investor relations professionals, while the continued rise in Covid-19 case numbers globally means hardly any hedge fund managers (3%) believe in-person cap intro events will prove the best source of new leads.

HFM's Chief Data Officer Elias Latsis said: "Despite a challenging market environment in 2020 hedge funds were able to fulfil their intended role in investors' portfolio, namely delivering risk management and downside protection. This bodes well for hedge funds in the year ahead, but managers must avoid becoming victims of their own success with performance expectations now set even higher. "

HFM's Head of Investor Research James Sivyer said: "Our research shows that 63% of family offices and high net worth individuals plan on increasing their hedge fund allocation in the first half of 2021. Hedge fund IRs are keenly aware of this demand for their products among private wealth allocators, with most of their top investor targets in H1 falling into the private wealth bracket".

Tom Kehoe, Managing Director and Global Head of Research and Communications at AIMA added, "The environment and implications from COVID-19 demonstrated that in times of market volatility and business uncertainty, alternative investments fulfil an increasingly important role in an investor's portfolio. With 2020 seeing both strong performance and high investor satisfaction, 2021 could see a renewed interest in hedge funds amongst investors, allocating to both public and private markets as they seek diversification away from low interest bonds and high valued equities."