In recent times, investors have been favoring hedge funds over re-investing in private equity deals, given the dwindling deal-making opportunities. BNP Paribas noted that major institutions are cautious about the volatility in public markets and are opting to entrust their investments to individuals trading either against broader market trends or with reduced exposure to market fluctuations.
Marlin Naidoo, BNP Paribas' global head of capital introduction in London, highlighted the shift away from passive management, stating, "Markets have moved away from the era of continuous growth, low rates, and soaring stocks."
The trend towards active management signifies a reversal in investment strategies among investors. In 2022 and 2023, investors withdrew $52 billion from high-performing hedge funds, a move mainly driven by pension funds and universities retaining their stakes in private equity and venture capital portfolios, which were becoming costlier than their returns.
The lack of substantial deal-making opportunities has hindered private equity's ability to capitalize on investments. Notably, global private equity and venture capital transactions in January amounted to $35.28 billion, a decrease of $70 million from January 2024, according to a recent S&P Global Market Intelligence report.
According to BNP Paribas, investors added a net $22.2 billion in assets to their portfolios, with nearly a fifth attributed to flows from private equity investors. Hedge funds saw a significant influx of funds last year, as investors shifted away from long-only equity and bond investments in favor of hedge funds.
Approximately two-thirds of the 290 surveyed investors indicated their intention to increase allocations to hedge funds.