Private investment, which was hit by the coronavirus pandemic, have regained growth momentum, and multi-strategies have become a bright spot in the hedge fund universe, according to market participants.
The pandemic dragged down investment activities and deal flows in the global private market, including private equity and private debt, in 2020, but fundraising has picked up this year, with dry powder reaching new highs and valuations rising, said Richard Tan, portfolio specialist for Asia at consulting firm Mercer.
He was among market participants who shared their views on global alternative investment trends at a virtual meeting organised by Asia Asset Management. Participants at the April 27 meeting included representatives from asset management firms and the Asian Infrastructure Investment Bank (AIIB).
“One of the reasons [for the recovery in private investment] is that investors are positioning for post-Covid-19 economic recovery,” Tan said.
Low interest rates are prompting private investment managers to use more deal leverage and loans. Tan said the increased leverage could potentially improve their internal rates of return, which may drive up their dry powder levels even more.
According to Andrew Chan, portfolio manager and head of hedge fund research at Singapore’s Avanda Investment Management, most hedge fund strategies underperformed global equity benchmarks over the past decade, and fund of hedge funds have long been underinvested by institutional investors.
However, he said multi-strategy hedge funds have been gaining popularity among asset owners in recent years because of their flexible structure and fee model. He said rising capital flows into multi-strategy hedge funds also allow managers to recruit more market talent.
Multi-strategy hedge funds are structured to deliver consistently positive returns regardless of the movements of equity, interest rate or currency markets.
Meanwhile, Stefen Shin, a principal investment officer at the AIIB, said one of the bank’s missions is to promote infrastructure investment, particularly in emerging markets, including by establishing benchmarks for infrastructure bond issuers. It also participates in direct investments in infrastructure projects.
Shin said global institutional investors have not been very keen to invest in infrastructure because of the underlying characteristics.
“Some infrastructures are not in the format investors like. They’re not securitised. They might be in the loan format and illiquid…” he said.
