The number of funds has shot up dramatically over the past couple of years. There are now approximately 500 hedge funds and about 3,000 prop shops in the UAE, making it a significant player in the context of the 30,077 hedge funds globally reported by the FT.
While some may consider prop shops based in Dubai as not actual hedge funds, it’s good to take a more expansive view of this sector – as they have capital, they are trading heavily, they are on the higher end of the risk spectrum, and appeal to limited partnerships and allocators with a high-risk appetite.
Apex co-hosted the Hedge Fund Today conference in Dubai on September 12, 2023. It attracted regulators – from the Central Bank of Bahrain, DIFC, ADGM, Strong Customer Authentication (“SCA”) and Virtual Assets Regulatory Authority (“VARA”) – hedge funds, law firms, fund services firms, prime brokers (full service and execution only), technology firms, recruitment firms, compliance firms, family offices, and others. In short, the great and the good of the hedge world were all present.
The heavy presence of regulators – who were all welcoming to hedge funds – was interesting. Healthy competition has emerged between them to attract hedge funds to their respective jurisdictions.
Apex looks after thousands of hedge funds globally. Apex gets to see the movements and trends on a monthly basis: how many, where they are investing, their strategies, which jurisdictions they prefer, where their investments are going, who is investing in them, how much they return, how many investors, and other metrics.
In the keynote speech, Bhaskar Dasgupta spoke about the following factors found in this data as well as the trends predicted for the next 12-18 months:
- Growth in the hedge fund sector is a given – it will be proceeding at pace despite macroeconomic challenges.
- The popular style of long-short equity is seeing fresh impetus. With macroeconomic challenges including rising interest rates and inflation, global macro still has a head of steam.
- Crypto hedge funds are reappearing in the market after a rather torrid 2022 and first half of 2023.
- Covid-19 led to investor engagement being conducted virtually. But even now the restrictions have been removed, virtual engagement has remained part of the engagement process, complementing face-to-face meetings. This means that the capital raising process is becoming increasingly efficient – it allows filtering and first engagements to happen virtually, so face-to-face meetings can be more intense and useful.
- Due to the interest rate hikes, capital raising is becoming more and more challenging. It is tough to compete with a nearly 9% risk-free rate of return in the US. Investors are still rebalancing their portfolios and allocators are hugely reducing the number of partners they work with.
- Environmental, Social, and Governance (“ESG”) is coming up as a factor in allocators’ decisions, especially in Europe. Investors must show their governments, trustees, and other stakeholders that their investments are ESG-compliant. And an interesting second-order effect is that investors are only investing with funds that they consider to be aligned with ESG. Therefore, the ESG impact is spreading.
- Hedge fund fee compression is continuing. The old 2/20 model has become more like 1.4/16.4 and is expected this to reduce further.
- Hedge funds have always utilized the latest technology and now the use of AI/ML in their trading models has shot up substantially.
- Barriers to entry for first time hedge fund managers have dropped due to the availability of capital, fund platforms, multiple options as well as welcoming regulators and other factors.
- Larger funds are, surprisingly, showing better performance than smaller funds.
- Multi-manager platforms are popular and still growing.
- To reduce costs, hedge funds are focusing on further divesting non-core functions so they can focus purely on capital raising, strategy, and investment management.
The event was successful, with 460 registered attendees and approximately 250 shows. The first financial event of the GCC winter season was well-attended and rich in content. Going forward, we are looking forward to hosting several more similar events and continuing to support the hedge fund ecosystem in the region.
To find out more, please contact the team.
