While we look at how the world has changed in the recent past with COVID-19, we also have to look at how the recent outbreaks are still shaping the economy and how we look at how the industry is going to evolve in 2022.
COVID will impact managers differently than other times
As we traverse the world through the different outbreaks of COVID, it’s silly to think that the more recent outbreaks have been treated as severely as the first. With more and more people being vaccinated, we know now that it’d be silly to keep managers in the industry from traveling. Knowing that there’s a higher chance of getting an investment if they can meet in person rather than virtually, there is going to be more travel in early 2022.
Hybrid work is here to stay
This gives people more flexibility as to where they live and reduces commuting times. Even though travel is looking like it will increase, meetings and other aspects of work will continue to stay virtual. Traveling can be time-consuming and, frankly, exhausting, so making the meetings virtual means that you can come together as a company as long as you have a wi-fi connection. Virtual meetings can also be recorded so that people can share them with other members of the team, or parts can be reviewed on a different date.
Hedge fund flows will set a new record
The three primary factors that drive hedge fund flows to managers are the asset size of the hedge fund industry, manager turnover rate, and net flow to the industry. All of these factors are being put on hold as COVID has tampered down the investor’s rate of search activity. As investors look to update their portfolios, search activity will continue to rise.
Lower expected returns from private equity
These returns have been incredibly strong over the past decade, giving record flows into the industry. The industry experts can estimate close to $1 trillion of unused capital through private equity funds, expanding valuations further as money is invested in new deals. A lot of private equity funds have more risk than you as an investor may think, however. With money coming into the market to compete for deals, private equity’s return expectations should be lowered while increasing expected tail risk.
These are just a few of the ways that hedge fund trends will change over the next year.