HF Managers Gloomy On Economic Outlook

A survey of more than 70 U.S. hedge fund managers and their advisers reveals that most managers have a broadly pessimistic outlook for the U.S. economy in 2008. Kinetic Partners, which provides professional services to the asset management industry, conducted the survey.

Nearly three quarters believed the Dow Jones Industrial Average will end 2008 at no higher than 12,500 points, lower than the level at which it started the year. More than one-fifth were very bearish, saying that the index would end 2008 at about 10,500 points, a loss of 3,000 points for the year.

A portion, however, believed the DJIA will gain ground, ending at about 14,500 points by the end of 2008.

Respondents believed that economic conditions will force the U.S. Federal Reserve to keep a tight rein on interest rates, with 90% believing that the base lending rate will end 2008 at either 2% or 2.5%. Nearly half opted for the latter figure of 2.5%, suggesting they believe that the Federal Reserve will raise interest rates in the course of the year from their current position of 2%.

The survey found that most hedge fund managers have a pessimistic view of the U.S. economy, with more than 80% saying that U.S. economic growth by the end of the year will either be negative or stagnant.

One third believed that the U.S. economy would be in recession, while nearly half said the U.S. would show neither positive growth nor recession. Nearly one-fifth said the U.S. economy would be showing clear growth.

Julian Korek, a Member of Kinetic Partners, said: “The hedge fund industry has suffered hard in the credit crunch, as asset values tumble and prime brokers put a choke on new financing. Our survey suggests that the U.S. hedge fund community sees little improvement before the end of the year, and that the slowdown will continue.”