Hedge funds expected to yield 9.75% annual return due to high interest rates

Investors are anticipating a 9.75% average annual return from hedge funds within the next 19 months, according to a survey noted by BNP Paribas (OTC:BNPQY). This expectation is driven by the robust U.S. economy and rising interest rates that have been observed since late 2021. However, hedge funds estimate that it could take up to 29 months to achieve these returns.

From January 2022 to August 2023, hedge funds outperformed three-month Treasury bills by 1.10%, excluding the general rise in the MSCI index. This performance coincided with G10 central banks implementing a total of 33 rate hikes, amounting to an overall tightening of 1,075 basis points, up until August.

The high-rate environment has prompted nearly half of investors to consider shifting their strategies. These could include systematically traded commodity trading advisors, corporate bond trading, or actively managed macroeconomic portfolio trading.

The BNP Capital Introduction Group conducted a survey in summer 2023 involving 82 hedge fund managers. If hedge funds underperform the risk-free rate by less than 6%, investors might consider alternatives such as covenant heavy, secured private credit and real estate.


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