Institutional Investors Begin to Show Their Hands

In a recent piece, KKR’s Henry McVey said the following:

“Simply stated, we don’t want to own long-duration government bonds when governments around the world have shifted their tool kits from monetary stimulus to fiscal. We also believe that long-term bonds at their current prices with such low yields cannot satisfy their traditional roles in an asset allocation framework as either a ‘shock absorber’ and/or relevant income stream. For our nickel, we continue to believe that this cycle is different: Long-duration bonds will not rally materially when stocks sell-off in the next downturn. This call is a major one, but one we are comfortable making.”

We’ve been making a similar case for a while now, and this line of thinking might help to explain the recent resurgence in the demand for hedge funds. According to an article in FundFire (subscription required), “Net demand for hedge fund allocations hit a positive 28% this year, up from 12% in 2017 and even further up from the negative 3% investors reported in 2016, according to Credit Suisse’s Prime Services mid-year hedge fund investor sentiment survey, which polled 279 institutional investors representing $1.04 trillion in hedge investments between May and July.”

Institutional investors are clearly gearing up to fight the next battle.

Read more in our last blog Risk Budgeting Using Long/Short Equity >