RBC Global Asset Management: Global Investor appetite for fixed income hedge funds surges, research reveals

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RBC Global Asset Management research reveals strong institutional investor confidence in fixed income hedge funds, with 63% expecting annual returns of 10% or higher, though only 47% reported actually achieving double-digit returns. The survey of 450 senior investment decision-makers managing assets between $5 billion and $100+ billion found that 60% currently invest in hedge funds, with 84% of these allocated to fixed-income strategies.

Key factors driving demand include strong historical performance (65%), evolving fee structures (48%), and greater market liquidity (45%). The report, 'Shifting Strategies: How institutions are embracing fixed income hedge funds', found 55% of investors have a more positive opinion of these strategies, with 36% planning to fund through new inflows.

Investors identified geopolitical tensions (60%), interest rate policies (58%), and volatile equity markets (48%) as the main factors impacting fixed income in the next 3-5 years. Asset class (69%) and return predictability (59%) are top priorities when assessing potential allocations.

Positive

• 63% of institutional investors expect annual returns of 10%+ from fixed income hedge funds
• 60% of surveyed investors currently invested in hedge funds
• 84% of hedge fund investors allocated to fixed-income strategies
• 55% of investors have more positive opinion of hedge fund strategies
• 36% plan to fund hedge funds through new inflows
• 61% plan to evolve their exposure to hedge funds in next 12 months

Negative

• Only 47% of fixed income hedge fund investors reported actually earning double-digit returns
• 52% reported annual fixed income hedge fund performance of only 5-9%
• 25% plan to decrease allocations to other alternative strategies to fund hedge funds

MINNEAPOLIS, Feb. 25, 2025 /PRNewswire/ - Global institutional investors are feeling bullish about the return potential from fixed income hedge funds, according to research commissioned by RBC Global Asset Management. The report revealed that nearly two-thirds of global institutional investors (63%) expect annual returns of 10% or higher from fixed income hedge funds.

However, in contrast to investors' expectations looking forward, fewer than half (47%) of fixed income hedge fund investors surveyed reported having earned double-digit returns. Fifty-two percent of investors said their annual fixed income hedge fund performance ranged between 5-9%.

Fixed income hedge funds have become mainstream among global institutional investors as they seek higher yields without liquidity. Of those who responded to the survey report, 60% are currently invested in hedge funds, and of these, 84% are allocated specifically to fixed-income strategies.

Comprising responses from 450 senior investment decision-makers from asset owners across the US, Europe, and Asia managing assets of between US$5 billion and more than US$100 billion, the report found several factors underpinning the demand for fixed income hedge fund strategies. These include historically strong financial performance (65%) – rising to 84% in Asia and 70% in the US – evolving fee structures (48%) and greater levels of market liquidity (45%).

In November 2024, the inaugural report entitled 'Shifting Strategies: How institutions are embracing fixed income hedge funds' surveyed institutional investors' perceptions and intentions regarding alternative investment strategies including private credit, total return, and multi-strategy credit.

In the case of hedge funds, 55% reported that their opinion of these strategies has become more positive. When asked about plans for their hedge fund allocation in the year ahead, more than a third (36%) stated that they plan to fund this through new inflows while a quarter (25%) plan to decrease their allocations to other alternative strategies.

Commenting on the findings, Polina Kurdyavko, a hedge fund manager and head of BlueBay Emerging Market Debt, at RBC Global Asset Management, said:

"We believe we are in the golden age for fixed income hedge funds. Geopolitical tensions and interest rate policies continue to be top of mind for investors, and the resulting uncertainty is likely to create volatility in the markets. We believe funds that can play the markets from both the long and short side are particularly well placed to capitalise on the mis-pricings and inefficiencies created by this volatility to deliver positive returns, regardless of the market direction."

Other highlights include:

• Geopolitical tensions (60%), interest rate policies (58%) and highly volatile equity markets (48%) were identified by investors as the three main factors they think will impact fixed income in the next 3-5 years.
• Asset class (69%) and predictability/volatility of returns (59%) are the two priority factors for investors when assessing potential allocations investments into fixed income hedge funds.
• 42% of investors plan to consider higher yielding assets because of macroeconomic expectations for the year ahead, with 48% expecting target returns of between 10%-19% from their managers.
• 61% of institutional investors plan to evolve their exposure to hedge funds and 59% to private credit (e.g. specialist situations, securitised credit, distressed debt) over the next 12 months.

For more detail about the survey findings, please follow this link: http://institutional.rbcgam.com/alts-survey.

About RBC
Royal Bank of Canada is a global financial institution with a purpose-driven, principles-led approach to delivering leading performance. Our success comes from the 98,000+ employees who leverage their imaginations and insights to bring our vision, values and strategy to life so we can help our clients thrive and communities prosper. As Canada's biggest bank and one of the largest in the world, based on market capitalization, we have a diversified business model with a focus on innovation and providing exceptional experiences to our more than 18 million clients in Canada, the U.S. and 27 other countries. Learn more at rbc.com.

We are proud to support a broad range of community initiatives through donations, community investments and employee volunteer activities. See how at rbc.com/peopleandplanet.

About RBC Global Asset Management
RBC Global Asset Management (RBC GAM) is the asset management division of Royal Bank of Canada (RBC). RBC GAM is a provider of global investment management services and solutions to institutional, high-net-worth and individual investors through separate accounts, pooled funds, mutual funds, hedge funds, exchange-traded funds and specialty investment strategies. RBC Funds, BlueBay Funds, PH&N Funds and RBC ETFs are offered by RBC Global Asset Management Inc. (RBC GAM Inc.) and distributed through authorized dealers in Canada. The RBC GAM group of companies, which includes RBC GAM Inc. (including PH&N Institutional) and RBC Indigo Asset Management Inc., manage approximately $680 billion in assets (CAD) and have approximately 1,600 employees located across Canada, the United States, Europe and Asia.

Contact
Fatima Kasraie, ffarhatkasraie@bluebay.com
Tony Catinella, tony.catinella@rbc.com

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SOURCE RBC Global Asset Management (U.S.)

FAQ

What percentage of institutional investors expect 10% or higher returns from RY's fixed income hedge funds?

According to RBC Global Asset Management's research, 63% of global institutional investors expect annual returns of 10% or higher from fixed income hedge funds.

What are the top 3 factors investors believe will impact RY's fixed income investments in the next 3-5 years?

Investors identified geopolitical tensions (60%), interest rate policies (58%), and highly volatile equity markets (48%) as the three main factors that will impact fixed income investments in the next 3-5 years.

How many institutional investors surveyed by RY are currently invested in hedge funds?

According to the RBC Global Asset Management survey, 60% of responding institutional investors are currently invested in hedge funds.

What percentage of RY's hedge fund investors are specifically allocated to fixed-income strategies?

Of the institutional investors surveyed who are invested in hedge funds, 84% are allocated specifically to fixed-income strategies.

What are the top factors driving institutional demand for RY's fixed income hedge fund strategies?

The top factors driving demand include historically strong financial performance (65%), evolving fee structures (48%), and greater levels of market liquidity (45%).

How do institutional investors plan to fund their RY hedge fund allocations in the coming year?

More than a third (36%) of institutional investors plan to fund their hedge fund allocations through new inflows, while 25% plan to decrease their allocations to other alternative strategies.