European credit hedge funds top investor most-wanted list- Barclays

FILE PHOTO: The Barclays headquarters building is seen in the Canary Wharf business district of London

By Nell Mackenzie

LONDON (Reuters) – European credit hedge funds topped a most-wanted list of global hedge fund strategies in the second half of this year, according to a report by Barclays seen by Reuters on Friday.

A net 14% of investors say they would allocate more room in their portfolios to European credit hedge funds, according to Barclays’ survey of 230 investors that collectively represent about $6.5 trillion in assets under management.

While the highest total percentage of 21% of investors said they would increase their allocation to U.S. stock hedge funds which take long and short bets on equities, another 11% said they planned to pull out of this strategy. A short is a bet a stock price will fall.

Stock-focused hedge funds finished last year with a negative 8% return on average, Barclays said. They recorded a positive 5.2% performance in the first half of 2023, but this was well behind the S&P 500, which rose 18% in that time.

Among investor plans for less traditional hedge fund strategies, interest in private credit increased by the most. Almost a fifth of the investors said they were looking into funds that scoop up cheap bonds and distressed companies.

Most investors surveyed said they planned to increase hedge fund allocations.

Pension funds were keen to have cash on hand. They had plans to reduce exposure to less-liquid private equity and venture capital funds, while beefing up their bond portfolios, Barclays said in the report.

Endowments and foundations, while less interested in cash, also said they favoured hedge funds. Family offices said they would reduce their cash holdings, but were less keen on private investments.

A fifth of investors said that for new deals they have demanded that hedge funds pass a minimum performance-rate hurdle before charging fees. Most minimums are either a fixed rate or track the yield of U.S. Treasuries.

(Reporting by Nell Mackenzie; Editing by Amanda Cooper and Tomasz Janowski)