Institutions turn to arbitrage hedge funds as sector grows

The strong performance of hedge funds using arbitrage investment strategies during recent market volatility is set to boost the sector over the next year, new research* from international asset management company Managing Partners Group (MPG) shows.

Its study with 100 professional investors who are collectively responsible for $276 billion assets under management, found 28% believe institutional investors and wealth managers will dramatically increase allocations to arbitrage hedge funds while 46% believe they will slightly increase them  over the next 12 months.

The institutional investors and wealth managers questioned in Switzerland, Germany, Italy, and the UK agreed the strong performance of a number of arbitrage hedge funds is increasing interest in the sector. Their focus on simultaneously buying and selling assets in different markets to take advantage of price differences enabled them to generate profits and impressive returns in volatile markets when executed at scale.

MPG’s research shows the hedge fund asset class as a whole will see growth in institutional investment over the next 12 months – 17% of professional investors interviewed  expect a dramatic increase in allocations and 58% a slight increase in allocations. 

MPG’s Vita Nova Hedge Fund** aims to achieve long-term capital growth through an arbitrage strategy identifying short -to medium- term opportunities with inherent pricing weaknesses and the potential to improve over time as well as those assets that, when circumstances present themselves, can be acquired at a discount to their prevailing value.

It has delivered an annualised rate of return of 22.79% since launch in 2014 on. It divested almost entirely out of equities from the end of 2018, when MPG anticipated that a major event-driven correction was on the horizon and is still positioned defensively.

The table below shows how institutional investors rank the benefits from investing in hedge funds.

The Vita Nova investment management team may rely on economic forecasts and analysis in respect of interest rate trends, macroeconomic developments, global imbalances, business cycles and other broad systemic factors that may lead to arbitrage and alpha opportunities.

Jeremy Leach, Chief Executive Officer of Managing Partners Group

_{*Research conducted among 100 institutional investors and wealth managers in Switzerland, Germany, Italy, and the UK for Manging Partners Group by independent research agency PureProfile during September 2022.
*Vita Nova Hedge Fund - Fund Performance}