Investors switch from private equity to hedge funds, says BNP Paribas report

By Nell Mackenzie

LONDON (Reuters) - Investors are choosing hedge funds rather than re-upping their private equity investments after closed deals, as deal making in recent years has dried up, said BNP Paribas.

WHY IT’S IMPORTANT

Large institutions have become wary of a souring in public markets as they seek to put their money into the hands of people that trade in a way that is either contrary to broader markets, or less exposed to their swings.

KEY QUOTES

"Markets have gone from this pre-inflation world where everything was rising. Rates were low, stocks soared and investors dropped active management for passive," said Marlin Naidoo, global head of capital introduction at BNP Paribas in London.

This was a sign that investors were shifting back towards active management, Naidoo said.

CONTEXT

In 2022 and 2023, investors yanked $52 billion from top performing hedge funds. While it is not unusual to ditch low performing hedge funds, this exodus was driven by pension funds and universities sacrificing their strongest investments to hold on to private equity and venture capital portfolios which at that time were beginning to cost more than they yield.

The kind of deal making private equity relies on to see bets pay off, has not returned. Global private equity and venture capital transactions totaled $35.28 billion in January, down $70 million from January 2024, according to a S&P Global Market Intelligence report last week.

BY THE NUMBERS

Investors surveyed by BNP Paribas said they added a net $22.2 billion of assets to their portfolios.

Almost a fifth flowed that into hedge funds last year was from private equity investors. Investors also ditched long only equity and long only bond investments for hedge funds.

WHAT’S NEXT

Roughly two thirds of the 290 investors surveyed said they would increase their hedge fund allocations.

GRAPHIC

(Reporting By Nell Mackenzie; Editing by Dhara Ranaginghe and Tomasz Janowski)