Survey: Hedge fund cash will move back into play

Date: Wednesday, March 25, 2009
Author: Jeff Benjamin, Investment News.com

Hedge fund investors are sitting on nearly $300 billion in cash, 25% of which is expected to move back into the alternative category this year, according to the latest research from the global markets division of Deutsche Bank AG of Frankfurt, Germany.

“The hedge fund industry is down, but not out,” said Barry Bausano, co-head of global prime finance at the bank, said in a conference call today.

In its seventh annual survey of hedge fund investors, Deutsche Bank last month polled 1,000 hedge funds of funds, family offices, banks, wealth management companies, consultants, pensions, insurance companies, foundations and corporations.

The survey respondents collectively represent $1 trillion worth of hedge fund investments — more than 75% of the $1.2 trillion hedge fund industry.

Among other key findings of the survey:

• The total size of the industry is down from a peak of $2.2 trillion in October 2007.

• More than 80% of respondents expect hedge fund investments to be up at the end of this year.

• Hedge funds with $800 million to $4 billion are the most likely recipients of investment inflows.

• Performance, philosophy and pedigree ranked as the top criteria investors are looking for in a hedge fund, underscoring an increased focus on transparency and due diligence.

Exposure to investment leverage received low marks in the survey findings, with 73% of respondents saying they have reduced their exposure to leverage and 63% saying they are not interested in applying leverage to their portfolios this year.