Investors Foresee $200 Billion of HF Inflows in 2011

(March 8, 2011) — Deutsche Bank’s ninth annual Alternative Investment Survey has found that investors are predicting more than  $200 billion of net inflows into the hedge fund industry in 2011.  

“Despite a challenging market environment over the past year, the hedge fund industry continues to trend upward, with investors predicting a fourfold increase in inflows into the industry in 2011,” said Barry Bausano, Co-Head of Global Prime Finance and Head of Equities in North America, in a statement. “Investors’ responses indicate a sustained, strong recovery,” added Jonathan Hitchon, Co-Head of Global Prime Finance. “Bullish sentiment on equities, flows, and industry dynamics were the clear messages conveyed by the respondents to our survey.”

According to the study, which was conducted in January among investor entities worldwide representing over $1.3 trillion in hedge fund assets, more than 50% of investors increased their allocations to the asset class last year. The findings show that equity long/short, event-driven and global macro are predicted to be the best performing strategies, while the US is predicted to be the best performing region, followed by emerging markets and Latin America. Furthermore, the study noted that performance is still the No. 1 factor when assessing a hedge fund manager. This year, 43% of investors cite access to the portfolio manager as a priority factor, above manager pedigree.

Earlier this month, a Credit Suisse Annual Hedge Fund Investor Survey, which collected responses from institutional investors representing $1.2 trillion of hedge fund investments, found that hedge fund investors are most concerned about investment risk. Next in priority risk to hedge fund performance were changes in EU regulations; asset/liability mismatches in hedge funds; changes in US regulations; counterparty/credit risk and asset/liability mismatches in fund-of-funds, exemplified by funds continually seeking to find a balance between using fund-of-funds and investing directly in hedge funds.

The research by Credit Suisse supports earlier evidence from Preqin’s study of 60 hedge fund managers from Asia, US, Europe, and other parts of the globe that found that  institutional investors have revolutionized the hedge fund industry. “The consensus is clear: hedge fund managers are witnessing large inflows of capital from institutional investors, and are adapting their fund strategies and marketing accordingly,” said Amy Bensted, Preqin’s manager of hedge fund data, in a statement. “Smaller funds continue to find it more difficult to attract institutional investors, as many do not have sufficient assets under management to be a viable investment option for some of these investors. However, most fund managers are expecting more money from institutional coffers over 2011 and into 2012, suggesting that the proportion of institutional capital in the sector is due to grow even more over the next 18 months.”