Fixed-income hedge funds have long been an important and resilient segment of the Nordic hedge fund space, particularly in the past two years, with the group delivering average returns of 11.5 percent in 2023 and 13.5 percent in 2024. Optimism in this strategy segment extends beyond the Nordic region, as institutional investors worldwide are increasingly confident in this strategy. A survey commissioned by RBC BlueBay Asset Management highlights growing bullishness among global institutional investors regarding the return potential of fixed-income hedge funds.

The research found that nearly two-thirds (63 percent) of surveyed global institutional investors expect annual returns of 10 percent or higher from fixed-income hedge funds. However, in contrast to investors’ expectations looking forward, fewer than half (47 percent) of investors surveyed reported having earned double-digit returns. Fifty-two percent of investors indicated that their annual fixed-income hedge fund performance fell within the 5-9 percent range.

Fixed-income hedge funds have gained widespread traction among global institutional investors seeking higher yields while maintaining liquidity. According to the survey, 60 percent of respondents are currently invested in hedge funds, with 84 percent of them allocating capital specifically to fixed-income strategies. The survey gathered insights from 450 senior investment decision-makers representing asset owners across the U.S., Europe, and Asia, managing assets ranging from $5 billion to over $100 billion.

“We believe we are in a golden age for fixed income hedge funds,” says Polina Kurdyavko, Head of BlueBay Emerging Market Debt at RBC Global Asset Management. “Market inefficiencies created by geopolitical and policy uncertainty provide hedge funds with unique opportunities to generate returns,” she explains. “Funds that can take both long and short positions are particularly well positioned to navigate these conditions.”

“We believe we are in a golden age for fixed income hedge funds.”

Polina Kurdyavko, Head of BlueBay Emerging Market Debt at RBC Global Asset Management.

Annica Woronowicz, Senior Director and Head of Nordics – Business Development, observes strong investor appetite for alternatives in the Nordics, though hedge fund strategies remain less favored. “Looking back, we’ve certainly seen a growth in Nordic investor appetite for alternatives with allocations rising from approximately 5-10 percent to 20-25 percent of overall portfolios,” says Woronowicz. “While domestic real estate and private equity strategies have historically proved most popular, we have in recent years seen a greater willingness amongst investors to consider other sub-asset classes with the universe.”

“In the case of hedge funds specifically, this has been an unloved and under owned area for the region for some time owing mainly to under performance, but we see higher interest rates and greater levels of volatility as positive forces driving active investor interest.”

Annica Woronowicz, Senior Director and Head of Nordics – Business Development.

When it comes to hedge funds, however, Woronowicz acknowledges that the asset class has been largely overlooked in the region due to past underperformance. “In the case of hedge funds specifically, this has been an unloved and under owned area for the region for some time owing mainly to under performance, but we see higher interest rates and greater levels of volatility as positive forces driving active investor interest,” says Woronowicz. She also highlights the importance of regional differences, noting, “the Nordics are not a homogenous block and that there are nuances where certain sub asset classes work better for certain countries within their regulatory and jurisdictional requirements.”