The most popular region among institutions seeking private-equity investments in the fourth quarter of 2009 was Asia, according to Massachusetts-based Brighton House Associates (BHA). And with regard to hedge-fund strategies, the biggest increase in interest was in global-macro and natural-resource strategies.
During the fourth quarter, BHA surveyed more than 1,300 alternative investors from across the globe on their interests and investment trends heading into 2010. They included firms from banks to corporations to endowments to insurers to sovereign wealth funds to private banks.
In testing times for the private-equity sector, investors that researched PE managers during the fourth quarter of 2009 expressed an interest in funds that provided regional diversity. The most popular region was Asia, with more than 20% of active investors seeking funds focused on the region. Smaller, yet significant pockets of investors were looking for funds focused on Japan, China and India.
Asian bank lending was one reason for this trend, says BHA. One vice-president of private placements at a large investment manager that participated in the survey says regional banks in Asia did not suffer from subprime-related losses as did their European and US counterparts. As a result, Asian banks continued lending in a manner that allowed for PE deals to be completed.
BHA cited a US-based public pension plan with around $3 billion in assets that expressed interest in Asia-focused PE funds. During the fourth quarter, it evaluated opportunities in buyout and mezzanine funds focused on Japan. The pension plan was moving away from making commitments in the US, instead viewing the Japanese market as having more potential over the coming years.
As a result of this interest in Asian PE, "there is undoubtedly a market for managers raising capital and launching such funds as we enter 2010", says BHA. "The financial crisis did not have the impact on Asia that it did on Europe and the US, and investors appear comfortable evaluating funds that have a reasonable opportunity to provide safe, consistent returns."
BHA also broke down its findings with regard to investors in hedge funds. One of the strongest trends was an increasing number of investors actively researching global-macro strategies (more than 40% as of Q4). There was also significant interest in funds focused on the natural-resource sector. Long/short equity remained the most popular, with some 60% of investors researching this strategy.
Investors consistently mentioned that they intended to gain exposure to global-macro funds and attributed their interest to a myriad reasons, says the report. The two reasons cited most frequently were global-macro funds' broad economic approach and their highly liquid structure.
Another indication of the way that investor sentiment has shifted towards this category of funds can be seen in the allocation of seed capital to new global-macro fund managers.
Acceleration Capital Group carried out a survey tracking where seed investors were placing capital during 2009. During the first and second quarters, the majority of capital was going into distressed and short-term trading strategies, but global-macro strategies garnered interest from only 32% of investors. But during the third and fourth quarters, global macro interest jumped to 52% and tied with distressed as the most sought-after strategy in that category.
Meanwhile, in their search for uncorrelated investments, many flocked to the natural-resource sector in the fourth quarter. Of investors profiled by BHA in the fourth quarter, 21.43% expressed an interest in natural-resource and energy-focused hedge funds. Investors cited global industrialisation and urbanisation as the major underpinnings of the rapidly rising natural-resource sector, especially in developing nations, China in particular.
In the fund-of-hedge-fund space, aside from long/short equity, commodity trading advisor (CTA) strategies were the most popular strategy for research after long/short equity. Again, among the main spurs for this interest were increasing commodity prices and swift economic development in countries such as China and India.
Of the BHA survey respondents, 52% were US-based, 39% in Europe, 4% in Asia, 2% from Africa/the Middle East, 2% from Central/South America and 1% from Oceania. The institutions' AUM figures ranged from less than $100 million to more than $10 billion dedicated to alternative investments.