BlackRock Tells Investors To Begin Trimming Positions and Allocate More Capital to Hedge Funds: Report

BlackRock’s Investment Institute is reportedly advising institutional investors to increase their allocations to hedge funds by up to 5 percentage points above pre-2020 levels.

According to a report by the Financial Times, the call to increase exposure represents the largest the institute has ever recommended.

To fund the additional hedge fund exposure, BlackRock suggests trimming positions in developed-market government bonds and equities, while continuing to maintain existing exposure to private markets.

Within the hedge fund space, allocation varies considerably. European pension funds hold around 4%, while U.S. wealth managers hold as much as 17% in hedge funds, according to Preqin data cited by BlackRock.

Vivek Paul, global head of portfolio research at BlackRock’s Investment Institute, noted that in today’s context, “active management could do better”, making macro and market-neutral hedge fund strategies particularly suitable.

In a new interview with CNBC, Rick Rieder, the asset management giant’s chief investment officer of global fixed income, says several factors make the current market favorable for investors.

“It doesn’t mean necessarily everything’s going up, but there’s a couple things at play that are pretty extraordinary. First of all, technicals on equities are crazy, the amount of cash on the sidelines, the amount of buybacks relative to the IPO (initial public offering) calendar, i.e. the demand versus supply, is pretty extraordinary…

I looked at 2024 – if you strip out Tesla for obvious reasons – Mag 7 year-on-year growth is like 54%…

Then you take the other side of it, you have a fixed income. I think the Fed can cut rates, but until then you got yield levels, you can create portfolio 6.5%-7% yield. That’s pretty good.

I would throw out [one] last thing… [there’s] low volatility to own equities – so you don’t actually have to take the downside risk. That’s a pretty good environment.”

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