Preqin Survey: Hedge Funds Sense Opportunity in Brexit Turmoil

Jul 6 2016 | 9:51pm ET

While many alternative managers expect portfolio performance and investment decisions to be affected by Britain’s decision to leave the European Union, hedge fund managers expect to benefit from increased market volatility over the short term, a survey by industry data provider Preqin has revealed.

Preqin polled 75 private capital fund managers (which are defined as private equity, venture capital, real estate, infrastructure, private debt and natural resources funds), 67 hedge fund managers and 50 institutional investors between June 30 – July 4 in order to gauge Brexit-related reactions and expectations. 

Nearly half (45%) of private capital managers believe the Brexit decision will have no effect on their portfolio in the next 12 months, while 31% of hedge fund managers stated the referendum results were set to have a positive impact. Perhaps unsurprisingly, Preqin noted, approximately 25% of all respondents remain uncertain of the implications.

Investors are taking a cautious approach, with more than a quarter of investors overall expecting to invest less in the UK in the wake of the result, according to the poll. 

Other key findings from Preqin’s survey include: 

  • In the next 12 months, 19% of surveyed private capital fund managers expect their performance to be negatively impacted by Brexit, while 13% expect the impact to be positive. In the longer term, 9% expect Brexit to have a positive impact on performance, and 13% a negative impact. 
  • Almost a third (32%) of private capital managers will look to invest less in the UK over the next 12 months, while 3% anticipate investing more. In the longer term, 14% each expect to increase and decrease their UK investments. 

  • Although 13% of hedge fund managers said that they thought it would be negative in the short term, 31% expected the impact of Brexit on performance to be positive. In the longer term, almost a quarter (23%) expect the impact to be positive, while no surveyed manager anticipated a negative impact. 

  • Twenty-one percent of hedge fund managers will look to make more investments in the UK over the next 12 months, and 13% will make more UK investments in the longer term. Just 11% will reduce their investments in the short term, and 8% will make fewer investments in the longer term. 

  • Preqin noted that the initial impact of the Brexit announcement on hedge fund performance has been mixed. While 27% of hedge fund managers reported it has had a positive effect on their recent performance, more managers have seen either a negative effect (34%) or no effect (39%). Of those that saw an impact, many managers were seeing a minimal negative impact on absolute returns of between 0% and -2.5%.
  • Among private capital investors, 30% think the impact of Brexit on performance will be negative, while 12% think it will be positive. Hedge fund investors are more optimistic; 22% think performance will be negatively impacted, but 35% think it will be positive. 

  • Preqin’s survey reveals the impact of Brexit on institutional investment in UK alternatives is set to be significant. 43% of private capital investors will invest less in the UK in the next 12 months as a result of Brexit, and 31% will do so in the longer term. Among hedge fund investors, those figures stand at 31% and 24% respectively. 

  • A quarter of private capital investors will also look to invest less in the EU over the next 12 months, while 6% think they are likely to invest more. Overall, though, 70% of alternative assets investors expect to maintain their EU investments in the short term, and three-quarters expect no change in the longer term. 

Preqin’s full survey is available here.

Founded in 2003, Preqin is a leading source of information for the alternative assets industry, providing data and analysis via online databases, publications and bespoke data requests. More than 40,000 professionals in 90 nations use the company’s products.  

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