Wealthy US and Asian Investors Shift Focus from American to European, Middle Eastern Hedge Funds

US and Asian Investors Shift Hedge Fund Allocations to Europe and the Middle East

A recent Bank of America survey reveals that wealthy investors from the United States and Asia are canceling plans to invest in U.S. hedge funds this year. Instead, they are increasing their exposure to funds based in Europe and the Middle East, marking a significant shift in global investment strategies.

Declining Interest in U.S. Hedge Funds

According to the survey, half of the allocators who previously expressed interest in investing in U.S. hedge funds have now abandoned those plans. The shift highlights a change in investment preferences among large investors, potentially influenced by factors such as economic conditions and regulatory landscapes.

Increased Allocations to Europe and the Middle East

The Bank of America report, which included responses from 263 participants representing approximately $840 billion in industry cash, indicated that allocations to European hedge funds exceeded expectations by 8%. U.S. and Asian investors are leading this movement, drawn by the growing presence of global hedge funds in locations like Abu Dhabi and Dubai.

Preference for Separately Managed Accounts

The largest investors, managing over $10 billion, are particularly interested in deals involving separately managed accounts. These specialized investment vehicles cater to individual allocators, providing tailored investment strategies and greater control over their assets.

Significant Inflow of Funds into Hedge Funds

Firms such as pension funds, sovereign wealth funds, and family offices have collectively invested $37 billion into hedge funds so far this year. This represents the largest influx of new capital into the industry since at least 2016, suggesting a renewed confidence in hedge fund strategies despite the shift in regional allocations.

Liquidity and Market Trends

While some hedge funds offer investors quick access to their capital, others impose lock-up periods of up to five years. In the public markets, there has been a recent return of capital to U.S. equity funds, with weekly flows tracked by EPFR reaching a year-to-date high of nearly $58 billion last week.