Hedge Fund Outlook For 2023: What To Expect As Managers Face Increased Complexity

As investors and fund managers prepare to flip their calendars from 2022 to 2023, they have their work cut out for them. In 2022, commodities and macro funds were the big outperformers, and for good reason. This past year brought the first major war in Europe in 75 years and wrapped up the first pandemic in a century.

Meanwhile, spearheaded by the Federal Reserve, the world’s central banks have been trying to tame inflation — with relatively little impact. BlackRock BLK -1.1% believes central banks are “deliberately causing recession by overtightening policy to tame inflation,” a view that many asset managers share.

So what does all this mean for 2023? Many of 2022’s macro conditions will remain in place in the new year, although every year brings its own set of challenges. In a recent interview with ValueWalk, Jay Peller of the Citco group of companies said he continues to see a bright future for alternative investments in 2023.

“As investors adapt to the new market environment and seek out alternative investments to provide them with a diversified source of potential returns, we expect end investors to continue to turn to hedge, private equity, private credit and real assets funds in increasing numbers in 2023,” he said.

Will commodities and macro funds continue to be the big winners?

For most of 2022, macro funds were among the big outperformers on the back of rising interest rates, soaring commodity prices, and currency shifts as the dollar strengthened against other currencies.

However, Citco data reveals that commodities funds actually outperformed global macro funds through the end of November, generating a weighted average return of 19.49% and a median return of 12.99%. Global macro funds were close behind with a weighted average return of 16.47% and a median return of 10.75%.

Across all strategies, the funds administered by Citco generated a total weighted average return of -6.49% and a median return of -3.5% for the first 11 months of 2022. However, going into 2023, one thing most investors are concerned about is whether there will be a recession.

The Fed has been clear about its intention to keep raising interest rates until inflation is under control. As a result, the debate about whether the central bank will be able to engineer a so-called “soft landing” has been heated. All these dynamics suggest macro fund managers could find some situations similar to those they capitalized on in 2022.

Investor flows

Of course, it’s anyone’s guess whether 2023 will bring net inflows or outflows, either for macro funds or for the industry as a whole. However, it could take a few months before any trends can be seen clearly.

As of November, Citco observed plans for $9.5 billion in outflows for 2023, although the exact timing of those flows will remain unclear until the last day of the year. Overall though, Peller expects 2023’s capital flows to be somewhat similar to 2022’s flows.

More private credit, hybrid and multi-strategy fund offerings

He also expects to see an increase in private credit strategies as fund managers take advantage of the gap left by banks that are no longer able to lend like they used to.

“A lot of private credit strategies have seen huge growth in the last two years,” Peller noted. “I think that growth continues next year, and I think as far as regulation and costs, all the complexities will continue.”

In 2022, he has also been seeing more and more pure ESG (environmental, social and governance) funds. Looking into 2023, he expects even more ESG funds to be established.

Peller also expects an increase in multi-strategy funds, which became increasingly popular in 2022. Citco recorded net inflows of $6 billion into the multi-strategy funds it administers during the first 11 months of the year — despite their weighted average loss of 7.12% and median loss of 2.53% over that timeframe.

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By Published On: January 2, 2023Categories: UncategorizedComments Off on Hedge Fund Outlook For 2023: What To Expect As Managers Face Increased Complexity

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About the Author: Patriotman

Patriotman currently ekes out a survivalist lifestyle in a suburban northeastern state as best as he can. He has varied experience in political science, public policy, biological sciences, and higher education. Proudly Catholic and an Eagle Scout, he has no military experience and thus offers a relatable perspective for the average suburban prepper who is preparing for troubled times on the horizon with less than ideal teams and in less than ideal locations. Brushbeater Store Page: http://bit.ly/BrushbeaterStore

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