12th FERI Hedge Fund Investment Day: "Hedge Funds Benefit from the Changed Interest Rate Environment"

After the difficult years of the low interest rate phase, hedge funds have recently again significantly increased their performance. The dynamic rise in interest rates since 2022 is fuelling risk-adjusted return generation for selected strategies. The good news for hedge fund managers and investors is that interest rate volatility is likely to remain high. These are key messages from the 12th FERI Hedge Fund Investment Day, held this year as a hybrid event in Bad Homburg, Germany. "I am very pleased that investors will have direct access to selected top international hedge fund managers exclusively through FERI," said Dr. Marcel V. Lähn, CIO of FERI AG. The board member continues: "In contrast to traditional long-only investors, hedge fund managers are in a position to profit from both rising and falling markets. That is why we still consider hedge funds to be an elementary building block in a globally oriented multi-asset portfolio. The key is to first identify the right strategy and then select the manager that fits it."

Equity long/short and merger arbitrage at an advantage

The 2022 interest rate turnaround would have caused a broader diversification of returns across different asset classes, creating ideal conditions for hedge funds. "Hedge funds are benefiting from the changed interest rate environment and higher interest rate volatility, as this creates opportunities for managers," said Marcus Storr, Head of Alternative Investments, FERI AG. The higher market interest rate would increase the total return of selected hedge fund strategies. This is particularly evident in equity long short strategies, for example, he said. "With rising interest rates, the interest income from short sales also increases here. This automatically increases the total return," Storr added. He also said there are improved trading opportunities for the Merger Arbitrage and Convertible Arbitrage sub-strategies in the current interest rate environment. "Even if bonds now provide an attractive risk-free rate again, hedge funds remain essential as a risk buffer for a balanced multi-asset portfolio," Storr concluded.

Another focus of the 12th FERI Hedge Fund Investment Day was the topics of administration and risk management. In a panel discussion it became clear that allocations in offshore hedge funds are very compatible with the requirements of the legislator: "With the appropriate expertise, a regulatory and economically clean set-up in offshore hedge funds, which also includes money laundering checks, is possible for professional investors without any problems," said Dr. Willi Müller, Head of Portfolio Management Union Investment Luxembourg S.A., Luxembourg.

At the 12th FERI Hedge Fund Investment Day, institutional investors and portfolio managers discussed current developments in the hedge fund industry. The hedge fund managers, who all came from London this year, also provided insight into selected investment strategies.