Hardly any other asset class has grown as strongly in recent years as hedge funds. The number of funds has almost doubled in the last twelve years, and assets under management worldwide have risen above the EUR 3 trillion threshold for the first time in the course of 2020. Hedge funds are in particular demand among institutional investors looking for high-yield alternative investments in times of low interest rates. Multistrategy and convertible arbitrage funds are particularly popular. These investment strategies were able to achieve high profits precisely because of the distortions in the corona crisis.
The hedge fund industry expects further growth in the coming years. The tailwind is coming from an unexpected direction: the greater attention being paid by politicians to sustainability guidelines such as ESG (Environmental, Social, Governance), SDG (Social Development Goals) or SRI (Socially Responsible Investments) should give hedge funds an additional boost. Investors are also increasingly expecting alternative investments to take social and environmental issues into account and to pay attention to sustainable corporate management. With the instrument of "short selling", hedge funds have a strong incentive to uncover companies that violate corporate governance or even act fraudulently. As market-independent investments traded off the stock exchange, hedge funds are also more flexible than the investment mainstream. Hedge fund managers can use this flexibility to adapt quickly and adequately to the new sustainability regime. For example, quantitative hedge funds, whose investment decisions are controlled by algorithms, are already able to convert their portfolios at the push of a button so that, for example, ESG criteria and corresponding reporting requirements are met. In addition, hedge fund strategies are very often based on identifying and profitably exploiting inefficiencies in market pricing. Such valuation inefficiencies also arise in the area of sustainability due to the inconsistent and confusing investment criteria. "Price arbitrage is virtually part of the DNA of this asset class. The legal regulation therefore acts as a new source of return for hedge funds," says Marcus Storr, Head of Alternative Investments at FERI.
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FERI AG
Rathausplatz 8-10
D-61348 Bad Homburg