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Preqin surveyed 276 hedge fund managers and 108 investors in November 2016 to see how their views on Brexit have changed since the referendum result. The report – Impact of Brexit on Hedge Funds – combines the results of that survey and comprehensive data taken from Preqin's online services.
As the majority of fund managers believed the UK would vote to remain in the UK (71 per cent), it is unsurprising that a large proportion were caught out by the immediate market turbulence.
In July, 34 per cent of firms thought Brexit had negatively impacted their performance in the aftermath of the vote, although 27 per cent managed to capture this volatility and boost returns.
Since then, managers have been able to navigate the market more adeptly, despite the vote still considerably affecting performance. In November, just 21 per cent of firms have seen a negative impact from Brexit over H2, while 32 per cent have seen their performance affected positively.
Going forwards, a quarter of hedge fund managers expect the impact of Brexit to be positive for their portfolios, and now the industry has an opportunity to prove its value in generating non-correlated returns.
Investor confidence in the UK also seems to have returned since the referendum. Immediately after the referendum, 31 per cent of hedge fund investors expected to invest less in the UK over the next 12 months, and 24 per cent expected to invest less in the longer term. As of November, those proportions have fallen to 21 per cent and 18 per cent respectively, while the proportion looking to invest more in the UK over the coming year has risen from 7 per cent in July to 13 per cent currently.
UK- and Europe-focused hedge funds incurred steep losses in June 2016, immediately following the referendum result. However, both have more than recovered those losses in Q3, and as of the end of October are showing YTD gains of 1.91 per cent and 0.99 per cent respectively.
The majority of investors do not think Brexit will alter their hedge fund commitments in either the EU or the UK. Three-quarters of investors plan to invest at the same level in the UK over the long term, while 81 per cent of investors will maintain their current level of investment in EU-based hedge funds.