New allocations to hedge funds may more than triple this year, pushing the global industry’s assets to a new high, according to an annual survey by Deutsche Bank AG.
Hedge fund assets worldwide may increase 11 percent to $2.5 trillion by year-end, according to a survey conducted by Germany’s largest bank. Investors indicated they will add $123 billion of capital to the industry, in addition to investment returns that are expected to boost assets by $169 billion, the Frankfurt- based bank said.
Hedge funds are forecast to draw more net deposits as investors, especially institutions, pursue more stable returns with low correlation with other assets such as stocks and bonds, the report showed. The $2.3 trillion global industry gained an average 6 percent last year, taking in $34.4 billion of net inflows, according to Chicago-based data provider Hedge Fund Research Inc.
“Despite a challenging market backdrop in 2012, hedge fund performance toward the end of last year and the beginning of this year has been promising,” said Harvey Twomey, the bank’s Hong Kong-based head of prime finance distribution for Asia. Investors are eager to allocate more to managers that can deliver steady performance in the future, he added.
The annual survey, the 11th, polled 324 pension, endowment, fund of funds, foundations, insurers, consultants, private banks and family offices in 25 countries that manage or advise on a combined $1.2 trillion of hedge-fund assets.
Those hedge funds that are able to post consistent returns year after year are emerging as an attractive option for investors looking for both better risk-adjusted returns and capital preservation.
About 62 percent of the investors said they expect their hedge fund holdings to increase this year, compared with 42 percent whose allocations increased in 2012, the survey showed.
Sixty-five percent of all investors in the survey, including 79 percent of institutions, target returns between 5 percent and 10 percent for their hedge fund investments this year. Hedge fund underperformed the 13 percent rally in the MSCI World Index (MXWO) last year as prices of so-called risky assets such as stocks advanced on easing global macroeconomic concerns.
“The current market backdrop has unquestionably changed since the days of double-digit return expectations,” the report said. It added a return in the high teens is now considered attractive because of low interest rates and politics-driven markets.