Hedge funds expected to ramp up returns on higher rates: BNP survey

economictimes.indiatimes.com:

hedge funds to produce higher returns with the prospect of interest rates staying higher for longer, a BNP Paribas investor survey showed on Wednesday.

Interest rates in big developed economies have shot up since late 2021 to contain inflation, with resilience in the U.S. economy adding to a sense that rates will likely stay higher for longer than initially expected.

Investors now expect hedge funds to return an average of 9.75% annually within an average of 19 months, up from 6.85%, according to the survey.

However, hedge funds themselves think this will take longer, up to 29 months, the survey showed.

«There is a lag for hedge funds to catch up in the rising rate environment,» said Marlin Naidoo, global head of capital introduction at BNP Paribas.

«The question now is whether investors will be willing to wait — because that is where the gap is,» said Naidoo.

BNP Paribas said historical evidence shows hedge funds tend to perform well in higher and stable interest rate environments and less so when rates are lower.

When central banks are in a tightening or loosening cycle, hedge fund performance is not correlated to rising and falling rates, it added.

Stripping away the general rise in the MSCI index of world stocks, hedge funds posted on average a 1.10% better performance than three-month Treasury bills from January 2022 to August 2023, BNP Paribas said.

Only four of the central banks overseeing the 10 most heavily traded currencies held rate setting meetings in August.