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Written by Nell Mackenzie
LONDON (Reuters) – Concerns about too many identical trades in hedge fund portfolios have quickly risen to the list of concerns for global investors with exposure to hedge funds, a Bank of America survey shows. It was revealed.
More than a fifth of large investors, including pension funds and insurance companies, cited crowded trading as their top concern, according to a 2023 year-end sentiment survey released on Monday and confirmed by Reuters on Tuesday. That’s what it means.
This was a notable increase from the 2022 survey, when “crowding” ranked sixth. Additionally, more than half of survey respondents ranked crowding concerns in their top three.
Last year, hedge funds flocked to the world’s biggest tech stocks at a record pace. In November, many institutionally trading hedge funds suffered trading losses as a wave of herd exits became a bottleneck.
According to the BofA survey, hedge fund investors are concerned about a changing interest rate environment, managing the risk of trading losses, and capacity constraints.
Meanwhile, liquidity and geopolitical risks have moved down the list of concerns.
Still, hedge funds that trade long and short positions in the stock market remain the top hedge fund strategy tracked by the bank and have seen the most interest from allocators, the BofA note said.
Last year, these funds posted a return of 12.2%, the note added.
According to BofA, multi-strategy hedge funds have experienced a decline in investor interest, with the fund ranked second to strategy in 2022 and ranked fifth in 2023.
According to BofA, this decline in interest led to the largest declines in allocators, consultants, pension funds, sovereign wealth funds, and asset managers in Asia Pacific.
Interest in credit hedge funds increased the most, jumping from 6th place in 2022 to 3rd place in 2023.
(Reporting by Nell Mackenzie; Editing by Christina Fincher)
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