Institutional Appetite for Fixed Income Hedge Funds Surges, RBC Research Finds

MINNEAPOLIS, Feb. 25, 2025 /PRNewswire/ – Global institutional investors are feeling bullish about the return potential from fixed income hedge funds, according to research commissioned by RBC Global Asset Management. The report revealed that nearly two-thirds of global institutional investors (63%) expect annual returns of 10% or higher from fixed income hedge funds.

However, in contrast to investors’ expectations looking forward, fewer than half (47%) of fixed income hedge fund investors surveyed reported having earned double-digit returns. Fifty-two percent of investors said their annual fixed income hedge fund performance ranged between 5-9%.

Fixed income hedge funds have become mainstream among global institutional investors as they seek higher yields without liquidity. Of those who responded to the survey report, 60% are currently invested in hedge funds, and of these, 84% are allocated specifically to fixed-income strategies.

Comprising responses from 450 senior investment decision-makers from asset owners across the US, Europe, and Asia managing assets of between US$5 billion and more than US$100 billion, the report found several factors underpinning the demand for fixed income hedge fund strategies. These include historically strong financial performance (65%) – rising to 84% in Asia and 70% in the US – evolving fee structures (48%) and greater levels of market liquidity (45%).

In November 2024, the inaugural report entitled ‘Shifting Strategies: How institutions are embracing fixed income hedge funds‘ surveyed institutional investors’ perceptions and intentions regarding alternative investment strategies including private credit, total return, and multi-strategy credit.

In the case of hedge funds, 55% reported that their opinion of these strategies has become more positive. When asked about plans for their hedge fund allocation in the year ahead, more than a third (36%) stated that they plan to fund this through new inflows while a quarter (25%) plan to decrease their allocations to other alternative strategies.

Commenting on the findings, Polina Kurdyavko, a hedge fund manager and head of BlueBay Emerging Market Debt, at RBC Global Asset Management, said:

“We believe we are in the golden age for fixed income hedge funds. Geopolitical tensions and interest rate policies continue to be top of mind for investors, and the resulting uncertainty is likely to create volatility in the markets. We believe funds that can play the markets from both the long and short side are particularly well placed to capitalise on the mis-pricings and inefficiencies created by this volatility to deliver positive returns, regardless of the market direction.”

Other highlights include:

• Geopolitical tensions (60%), interest rate policies (58%) and highly volatile equity markets (48%) were identified by investors as the three main factors they think will impact fixed income in the next 3-5 years.
• Asset class (69%) and predictability/volatility of returns (59%) are the two priority factors for investors when assessing potential allocations investments into fixed income hedge funds.
• 42% of investors plan to consider higher yielding assets because of macroeconomic expectations for the year ahead, with 48% expecting target returns of between 10%–19% from their managers.
• 61% of institutional investors plan to evolve their exposure to hedge funds and 59% to private credit (e.g. specialist situations, securitised credit, distressed debt) over the next 12 months.

For more detail about the survey findings, please follow this link:

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About RBC Global Asset Management
RBC Global Asset Management (RBC GAM) is the asset management division of Royal Bank of Canada (RBC). RBC GAM is a provider of global investment management services and solutions to institutional, high-net-worth and individual investors through separate accounts, pooled funds, mutual funds, hedge funds, exchange-traded funds and specialty investment strategies. RBC Funds, BlueBay Funds, PH&N Funds and RBC ETFs are offered by RBC Global Asset Management Inc. (RBC GAM Inc.) and distributed through authorized dealers in Canada. The RBC GAM group of companies, which includes RBC GAM Inc. (including PH&N Institutional) and RBC Indigo Asset Management Inc., manage approximately $680 billion in assets (CAD) and have approximately 1,600 employees located across Canada, the United States, Europe and Asia.

Contact
Fatima Kasraie, [email protected]
Tony Catinella, [email protected]

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SOURCE RBC Global Asset Management (U.S.)