10 Predictions For The Hedge Fund Industry In 2022

Hedge funds once again underperformed the S&P 500 in 2021 in a year in which the market marched steadily higher, making new all-time highs in all 12 calendar months. Investors may be forced to navigate a more volatile market in 2022, and trends among hedge fund managers can provide some insight about what professional money managers are expecting on Wall Street this year.

Agecroft Partners Founder and CEO Donald Steinbrugge recently compiled his annual list of the 10 hedge fund trends he is expecting in 2022.

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“The hedge fund industry is dynamic and we believe 2022 will be the most transformative in its history,” Steinbrugge said.

Hedge Fund Trends To Watch:

Here are his 10 predictions for the hedge fund industry:

• Hedge fund managers will continue to return to in-person meetings with investors even amid the ongoing pandemic.
• Hedge fund managers will continue to emphasize virtual work and virtual meetings to save time, money and effort.
• Hedge fund industry size, manager turnover rate and net inflows all suggest there will be record hedge fund flows in 2022.
• With valuations throughout the market above historical averages, Steinbrugge expects hedge fund managers will focus increasingly on current valuations and future returns.
• Managers will focus increasingly on small- and mid-cap stocks, as well as international stocks after an extended period of outperformance by U.S. large-cap stocks.
• After a decade of outperformance by private equity, Steinbrugge expects lower private equity returns in 2022 given the stretched valuations in the industry.
• With interest rates and credit spreads expected to rise, fund managers will look to move assets away from fixed income investments and invest more in strategies such as distressed debt, specialty financing and structured credit.
• It will become increasingly difficult for investors to ignore Bitcoin BTC/USD and other cryptocurrencies, and Steinbrugge predicts hedge funds with exposure to crypto will see a significant increase in inflows.
• There will be record-breaking demand for capital introduction events in 2022, with most North American managers attending in person and most Asian managers participating virtually.
• The line between hedge funds and private equity will continue to blur as both increasingly offer investors different strategies and structures and access to different asset classes.

Benzinga’s Take: Hedge fund managers as a whole have an abysmal investing track record over the last decade. Rather than paying fees only to watch fund managers consistently lag the market, investors would have been better served buying and holding the SPDR S&P 500 ETF Trust SPY, which has generated a total return of 358.7% in the past 10 years.