HUGHES Hedge funds are a crucial part of the market and it is important to recognise that there are different types of hedge funds. One of the key things we have had to do is develop a deep understanding of individual pods.

For example, firms like Millennium Management Global Investment have pods operating all over the world, each behaving differently. It’s essential to know exactly which pod is participating in a book, as their strategies and approaches vary.

In some ways this is beneficial, because it contributes to a more diverse investor base. However, it also places greater responsibility on issuers to truly understand their investors, especially for high-grade issuers given the scale at which they operate. Every syndicated deal begins with thorough discussions to gauge demand but there can still be inflated bids. This means issuers need to navigate the process carefully.

Hedge funds play an important role in the market from a liquidity standpoint. Their involvement can enhance liquidity and secondary market depth. Ultimately, the extent of their allocation depends on the specific deal, but overall we should view their participation positively.

TRINH We put in significant effort to understand each fund, even down to the portfolio manager level, to distinguish and understand between NIM [net interest margin] traders and real-money managers. There is no doubt that hedge funds play an important role, but they are a diverse group with varying investment horizons. It is not that we will treat all hedge funds equally. But, at the same time, to view all hedge funds as fast money NIM trades is no longer the correct view.

JONES We have also focused on understanding hedge funds’ investment objectives, key drivers and who they are managing funds for. It’s important to identify who is participating and which specific funds they represent.

While our average allocation to hedge funds through fixed-rate syndicated transactions increased between 2022/23 and 2023/24, it has remained stable, at 8 per cent, into 2024/25. As everyone has noted, hedge funds play an important role as liquidity providers and they contribute to sector diversification. Maintaining strong engagement with them remains essential.

MEDINA I completely agree. For us, it has been about gaining a deeper understanding through direct engagement and communication. While hedge fund participation has always been present, it has become more prominent recently, likely due to increased supply.

We recognise it as a key pocket of demand, and these investors’ involvement has given us greater confidence in the market’s depth and diversification. A lot of work has gone into understanding the hedge fund space, and this will likely continue. The key questions over the next few years will be how hedge funds evolve and how their behaviour could shift. So far, their participation has been relatively stable and consistent, but this can always change. If it does, there could be a negative impact on liquidity.

The effort to diversify beyond hedge funds is just as important. There are still strong pockets of demand across different investor segments, and it will be interesting to see how hedge fund participation evolves over time.

These investors’ role is critical because they contribute to market efficiency – if a bond is priced too richly or too cheaply, hedge funds react quickly, ensuring fair pricing. This dynamic wasn’t as pronounced several years ago, but it has since become an integral part of the market structure and it will continue to evolve as another piece of the puzzle.

HILL I track hedge fund participation in deal statistics, but for me it’s not so much about the specific proportion of hedge fund participation but rather whether the semi market is continuing to function smoothly. So far, we haven’t seen any negative impact on market functioning.

PAIRMAN Hedge fund participation has increased but remains relatively small in the context of the size of the semi-government market. It was around 6 per cent last year, compared with approximately 2 per cent across all semi-government transactions the previous year.

Smaller semi issuers tend to attract fewer hedge funds, but we have seen participation grow as outstanding volumes and transaction sizes increase. When issuers were raising A$500 million (US$312.9 million), hedge fund involvement was minimal. While hedge fund participation has increased, it has done so in line with overall market growth.

At this stage, it doesn’t feel like hedge fund participation is a cause for concern and their involvement is generally viewed as positive. However, given the diversity of hedge fund investment strategies, some caution is warranted when considering allocations. Their impact on liquidity is a key factor, and this remains an important consideration. Issuers have a done a lot of work to understand the hedge fund sector.

HUGHES To be fair to hedge funds, they are not always the reason for a bond to underperform. For example, with our green bond, a major investor had to sheepishly call us to explain that they were divesting – not by choice, but due to a top-down mandate requiring them to exit all green bonds.

This decision had a significant impact on the bond’s performance in the first few months after issuance. In other words, it’s not just hedge funds that can influence post-syndication performance – other investors can also play a major role in shaping market dynamics.

BATSMAN As an issuer, our main goal in a syndicated deal is to strike the right balance in allocation across different investor types to ensure liquidity and support strong post-trade performance. No investor wants to buy a bond only to see it trade wider on the same day. Our aim is always to structure deals in a way that fosters healthy secondary market activity and ensures the bond performs well after issuance.