The pandemic has led to creating both challenges and opportunities for hedge funds. But the upcoming trends are showing a blend of opportunities and challenges. Hedge funds will continue their success graph in 2022 by mitigating the risk arising from market volatility, leveraging tech, and incorporating digital assets. If you are in search of an investment research firm, SG Analytics will offer tailored research support across asset classes to enhance the quality and efficacy of your investment.

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The Future of Hedge
Funds: Top Trends to
Watch Out For in 2022
With the world slowly recovering from the pandemic, the economic
market is reacting accordingly. The pandemic uncertainty has
created both challenges and opportunities for hedge funds. After
two years of investor outflows, the hedge funds industry finally
turned the corner in 2021, recording $25 billion in net investor
inflows. While the industry hasn't recouped the outflows, it does

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look like things are looking good for hedge funds based on investor
intentions in 2022.
Hedge funds are investment organizations that make investments
and trades from pooled investment funds. Hedge funds enjoy their
success by utilizing complex trading techniques, focusing on risk
management, and leveraging short/quick selling. Hedge funds are
unique from other investments as they are not regulated as
mutual funds and exchange-traded funds. They are considered
open-ended and enable investors to pull out capital depending on
the current status of the value of the assets.
Owing to the dynamic nature of the hedge fund industry, 2022 is
believed to be the most transformative year in its history.
Managers and investors are anticipating as well as preparing for
the changes that will likely follow.
Global macro managers are repositioning their portfolios to take
advantage of the near-term opportunities in currencies,
commodities, and rates. Hedge fund experts are also observing
due to the rising inflation pressure on longer-duration & shorter-
duration value-oriented stocks.

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In an environment where things are volatile, and the public is more
socially conscious than ever, hedge funds must reevaluate their
strategies for attracting investments as well as clients. Combined
with the growing importance of technology, hedge funds have a
lot to look forward to in 2022.
Read more: Top Hedge Fund Industry Trends, 2021
2022 and beyond: Hedge Fund Trends
that will Dominate the Industry
The hedge fund industry has not experienced the best
performances in the past decade but is likely to change in
2022. Hedge funds surpassed the S&P 500 last year, starting to
prove their worthiness as a tool for diversification and returns.
The COVID-19 pandemic brought unforeseen challenges for
investors. While the hedge fund performance in the past was not
very rewarding, the recent market crash directed investors to why
hedging is essential.

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Despite a negative public perception, hedge funds have managed
to record impressive performance. If actively managed, hedge
funds can perform better than expected in the forthcoming years.
Which will be the most prevalent future hedge fund trends, and
how will they impact our investment decisions?
The following sections highlight the top hedge fund trends that will
dominate the industry in 2022 and beyond.
Top Hedge Fund Trends to Watch Out
For
1. Continuous Growth and Outperformance
Hedge fund assets are expected to grow in 2022, thus marking
their most significant transition in the past decade. While the past
few years were marked by their performance growth, 2022 is
expected to record an all-time peak due to net inflows.
In 2022, fund performance in the hedge fund industry will likely
meet investors' expectations despite the pandemic. While a
continued positive performance after Q1 led to improving investor
confidence, the continuous growth is anticipated to come by
allocating funds to strategies with higher expected returns,
thereby shifting away from low-yielding fixed-income
investments.
2. Hedge Fund Industry to Go Digital, Leverage
Technology to the Fullest
Having access to quality data and reporting right at your fingertips
is more significant than ever. While only large hedge fund
managers previously leveraged AI & machine learning tools to
identify performance opportunities, mid-sized managers are now
following this trend. This reinforcement will enable managers to
check whether the data being fed into their systems is accurate.

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To stay competitive, hedge funds need to fully employ technology
to optimize efficiency in all processes, including:
• Reporting and data analytics
• Investment research
• Client communication
• Trading & Marketing
• Regulations and compliance
In 2022 hedge funds will experience an increase in automated
systems that will facilitate significant cost benefits.
3. Investors to Embrace Alternative Investments
Asset allocations will likely evolve for multiple reasons.
• Equity markets will continue to be undesirably volatile. With the stock
market experiencing volatility, investors are stressing their fear of market
volatility. This will lead to stable alternative assets garnering growing
consideration.
• The speculative equity bubble will continue to grow and create
systematic market risk. With record-breaking stock prices, investors are
exploring avenues to diversify away from major tech stocks. A recent
CNBC survey of financial executives revealed that 76% believe it is time to
be conservative in the stock market.
Investors today are looking for different places to invest, and many
are turning to alternative assets. This inclination to alternative
investment is guiding investors on the path of cryptocurrency. With
the advancements in financial technology, digital investment
platforms are circumnavigating direct investment by pooling
smaller contributions into funds that represent aggregated
ownership interest.
4. Focused Approach towards ESG
Although the ESG approach in the hedge fund industry is not new,
there has been little to no implementation over the past years.
With many European institutions integrating ESG in their

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investment diligence, the trend will likely become the new
standard.
The COVID-19 pandemic highlighted the economic and social
inequalities, leading to an elevated focus on social justice.
Public/private pension funds, endowments foundations, and
sovereign funds gained about 65% of the hedge fund industry,
making hedge funds a crucial player in this matter.
While ESG criteria are starting to simplify, industries and investors
are exploring ways to filter companies with low ESG scores to
exclude them from the portfolio.
5. Better Access to Investor Meetings
The pandemic has changed the way industries work. The adoption
of virtual meetings has forced the hedge fund industry to adapt to
these new changes.
This has led to reduced time and expenses for investors and
managers. Scheduling flexibility and other benefits of virtual
meetings will now enable investors to take advantage of this new
approach, and this trend is likely to remain in 2022 and beyond.
Another advantage of this trend - early-stage virtual meetings will
permit smaller funds to enjoy better access to investor meetings.
In years to come, the hedge fund industry is expected to carry out
a substantial portion of its introductory meetings and other events
virtually.
Read more: Top Trends That Will Shape Investment Banking In
2022

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6. Long/Short Equity to Grow as the Hottest Hedge
Fund Strategy
The most sought-after hedge fund strategy currently is long/ short
equity. Family offices are seeking long/ short equity managers to
help them identify the strategy and plans to boost their exposure.
Equity valuations are of prime concern for foundations and
endowments, and family offices, which is the reason why they seek
long/ short equity funds. The lingering geopolitical tensions and
pandemics drive the increased appetite for long/ short equity fund
managers among institutional investors.
Two issues contain distorted valuations, thus leading to creating
challenges in traditional asset investing. Smaller investors like
family offices who perceive high valuations and market
uncertainty as primary factors are facing challenges accessing
some of the larger private markets and real asset opportunities.
Many investors are spotting the opportunity to use fundamental

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research. This will lead to the expectation of returning of adoption
of long-short equity strategies.
7. Labor Scarcity will Fuel the Outsourcing demand
The labor shortage is threatening the wider global economic
recovery due to pandemic uncertainty. This issue is starting to
affect the hedge fund industry. Many experienced hedge fund staff
are leaving for other roles, and some hedge fund jobs are going
unfilled. This manpower shortage is forcing hedge funds to
outsource certain functions in different domains of operations.
With these labor scarcities to prevail, the need for hedge funds to
outsource their operations will likely grow.
8. The Growing Significance of Private Credit
Strategies in Markets
Institutional investors are increasing their focus on private credit
strategy markets. This trend will be maintained throughout 2022
and beyond.
Pandemic changed the way business works and even challenged
firms' viability. As many firms could not access these funds, private
credit managers filled in this need. Private credit will enable
investors to achieve a new type of hedge, income, and
diversification due to the increasing volatility of the investments
and lower fixed-income yields due to pandemics.
Read more: Global IPO was record-breaking in 2021; Should we be
preparing for headwinds in 2022?

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Looking into 2022: The Future for Hedge
Funds
The hedge fund trends are showing a mix of opportunities and
challenges. Hedge funds will continue their success graph in 2022
by mitigating the risk arising from market volatility, leveraging
tech, and incorporating digital assets.
Hedge fund investors will experience significant opportunities for
an alpha generation as markets recalibrate for a more
unpredictable future. Hedge fund investors willing to pursue
diverse and uncorrelated strategies will find possibilities in a
shifting array of near-term market dislocations and longer-term
secular trends.
The coming year appears destined to usher in a period of change
and holds the potential for greater market volatility – a key enabler
for hedge funds. In this era of pandemic-induced unease, hedge
funds may also provide downside protection and strategic
diversification, making them critical to building a well-diversified
portfolio.
With offices in New York, San Francisco, Austin, Seattle, Toronto,
London, Zurich, Pune, and Hyderabad, SG Analytics, a pioneer in
Research and Analytics, offers tailor-made services to enterprises
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A leader in Hedge Fund Research Services, SG Analytics helps in
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managers, active asset managers, and mutual fund
managers. Contact us today if you are in search of an investment
research firm that offers tailored research support across asset
classes to enhance the quality and efficacy of your investment.