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Central to this result is the continued gains achieved by the industry, with hedge funds reporting their strongest first half to the year since 2009. Moreover, as this report demonstrates, the sustained performance by hedge funds has been rewarded, with 2021 capital inflows up to May (+$57.8 billion) eclipsing outflows seen in 2020 (-$23.4 billion) by more than two-fold.

Investor plans for the second half of the year remain encouraging with more than one-third of all respondents planning to increase their allocation. The percentage of investors planning to increase their allocation to hedge funds dipped marginally compared to figures highlighted in the previous Investor Intentions report. This can be partly attributed to some investors finding themselves over-allocated to hedge funds and adjusting accordingly, although there are also some examples of investors being pragmatic in their weightings and remaining above target. More sophisticated investors are also exploring other strategies within the alternative investment universe, with respondents highlighting an increased appetite for private equity and credit funds, among other less liquid products.

The research, conducted in Q2 2021, surveyed 108 investors (with US$7.6 trillion in total investor assets) and senior IR and marketing professionals from 128 hedge fund managers to discover the changes allocators plan to their portfolios and how hedge fund managers plan to raise assets in H2 2021

Key highlights

A third of investors plan to increase their allocation to hedge funds, while a further 51% plan to maintain their present allocation.

Beyond reaching target allocation, the existence of exciting new opportunities within the asset class is the principal reason investors plan on increasing their hedge fund allocation (38%), followed by strong return expectations (31%)

Global macro strategies are likely to see the strongest inflows in H2 (32% of investors planning an increase), with investors particularly interested in the strategy's ability to hedge against rising inflation. Long/short equity and multi-strategy funds can also expect significant investor interest, with 31% planning increases.

Hedge fund managers are moving away from pandemic stand-ins as new sources of leads, notably referrals from existing clients, and instead are more likely to lean on prime broker cap intro teams to generate new business opportunities in the second half of the year.

Interest in allocation to private credit, first highlighted in the previous Investor Intentions report, was this time cited by investors as the most popular strategy to counter low fixed income yields

Concerning hedge fund managers' top investor targets, private wealth investors, such as family offices and high net worth individuals feature even more prominently than they did when HFM and AIMA last surveyed managers six months ago.

Despite increasing freedom to travel over the past couple of months, both managers and investors remain wary about a snapback in restrictions, with both groups planning relatively few new meetings in the second half. Managers and investors have, however, found ways around impediments to face-to-face meetings, with nearly two thirds (63%) of managers surveyed having completed virtual operational due diligence with a new investor in the preceding six months.