Global Diversification
Diversification has always been a standard way to hedge risk in any investment portfolio. Whether diversifying across sectors, strategies, or geographic exposures, investors are looking to minimize their downside risk. BHA’s data provide compelling evidence that global diversification is becoming a prevailing theme among investors interviewed by analysts during the past quarter. Entering the final month of Q1, investors are looking to allocate nearly 36 percent of every hedge fund investment mandate to a globally diverse hedge fund.
This means that more than one-third of BHA’s hedge fund investment mandates are focused on funds that do not have a specific regional focus. Globally diverse funds have the advantage of not being bound to and adversely affected by the potentially isolated economic conditions of a particular region. One U.K.-based wealth advisor that manages several billion in assets specifically outlined its desire to only invest in funds that are globally diverse and not confined to and restricted by regionally specific investment parameters. Hedge fund investors are looking for funds that can make quick tactical movements in difficult market environments. A fund that is globally focused is able to exploit opportunities no matter where they occur and can have a competitive advantage over its regionally focused peers.
During the past two months, country-specific-focused funds have seen a dramatic drop in interest from investors compared to globally focused funds. In fact, the U.S. is the only country that garnered double digit interest from investors. Countries like Africa, China, India, and Japan were mentioned in under 5 percent of the investor mandates that analysts collected. It appears that the prevailing theme of the first quarter in terms of geographic interest and focus is that investors are concentrating on investing in nimble and diversified positions with a global capacity to achieve absolute returns.