The latest Hedge Fund Confidence Index, published by AIMA in partnership with Simmons & Simmons and Seward & Kissel, highlights a rebound in confidence among hedge funds in the third quarter, but from a historical perspective. The situation looks very positive.
Confidence score for Q3 2024 was +20, up from +16.5 in Q2 and above the moving average of +17.8. The study interviewed 133 hedge fund firms from around the world with combined assets under management (AUM) of just over $800 billion. However, it is notable that Q3 was the quarter with the highest confidence score since the index was first published in 2020, compared to +25.4 in Q3 2002 and +25.4 in Q3 2024. +21.6 for the third quarter and +20.4 for 2021.
According to AIMA, there has been a resurgence in confidence among both large hedge fund managers classified as those with more than $1 billion under management and their smaller counterparts. Based on quarterly scores going back to Q4 2020, the average score difference between large and small respondents is 3 points, with large managers being more bullish for most of that period. It was.
However, this quarter, AIMA notes that the difference between the scores was less than one point, with smaller managers saying they were more optimistic. While trust among large managers has increased compared to Q2 2024, there has been a notable increase in trust among smaller managers, driving the overall score to its highest level since Q3 2023. contributed to reaching the
When creating the index, managers are specifically asked about their company’s ability to raise capital.
Generate revenue and control costs. The fund’s overall performance is also a factor. The report reads that the increased optimism appears to be driven by hedge funds’ confidence in their ability to perform, suggesting investors are encouraged, with 92% of respondents saying of respondents say it is a source of positivity, up from 78% in the second quarter.
Bullish attitudes toward performance were demonstrated by respondents from both large and small companies, with confidence scores increasing from 78% to 89% for large managers and from 77% to 96% for small managers.
Hedge funds’ confidence in their ability to raise capital also increased, albeit to a lesser extent, compared to the previous quarter for both groups of hedge fund managers, although the ability to control costs and generate profits may be lower for some managers. It appears that there are still headwinds. More than a quarter of respondents said this factor had made them less confident, up from 22% last quarter. Specifically, larger managers report being more concerned about cost control than smaller managers, with 36% saying cost control is hurting their confidence.
The impact of Q2 results on sentiment was revealed by Preqin’s latest earnings and capital flow data. Overall, hedge funds lost a total of $9 billion in net outflows in the second quarter. As of June 30, hedge funds had received $6.3 billion in net redemptions since the beginning of the year. Net redemptions, or cash outflows, are an ongoing problem for hedge fund managers. The industry has seen negative flows in seven of the past 12 quarters.
While North American managers were the most confident, outpacing the leading UK in Q2, the report found that there was “perhaps a more interesting sub-section” in the convergence of confidence scores between North America, the UK and Asia-Pacific. Plot” has been observed. Play over several quarters.
Prior to the third quarter of last year, the average range of scores between the most and least trusted regions in these three regions was 5.1, but in the five quarters since, that range has dropped to 2.9. did. “The data suggests that there is considerable consensus among hedge fund managers in these regions, perhaps indicative of the global macroeconomic challenges facing all hedge fund managers. ” states the report. “Historically, the scores for the three regions have been clustered in the third quarter, with the least confident region typically rising back to the rest, but unlike in the past, this trend is now It lasts for months.
“Whether volatility in regional confidence scores returns as the current interest rate cycle and other meta-themes in global markets give way to more regional challenges is a question for future editions of the HFCI.” added.
“If you look at the third quarter of 2024, it’s clear that there was a significant uptick across the board,” said Devarshi Saxena, partner and principal at Simmons + Simmons. “The performance of the UK market in particular has been outstanding. The high level of confidence this quarter has seen through its ups and downs highlights the UK’s strong position and resilience. This is a clear indicator of market recovery and growth. and has a positive outlook for the future.”
“The third quarter of 2024 will continue the seesaw trend in confidence that we first detected in 2022, with confidence rising in one quarter and then rising in the next,” said Steve Nadel, partner at Seward & Kissel. “Confidence declined in the quarter,” he added. However, given the very strong confidence shown in the third quarter, particularly in North America, the UK, and the long-short category in equities, we may see a breakout from the previous trend line. This can be attributed, among other things, to greater clarity on the different positions of the two US presidential candidates and the recent decline in interest rates. ”
Looking to the future, the report notes that industry patterns will continue to be shaped by continued challenges in cost control, especially for large companies, and emerging themes such as the end of the current interest rate cycle and other macroeconomic changes. states that it is highly likely. “As hedge funds navigate these changing landscapes, future HFCI reports will ask whether this newfound optimism continues, or whether regional and firm size disparities will resurface. It will reveal what is likely to spark new trends in capital raising, performance and cost management,” the report said.