Hedge-Fund Investors May Add $50 Billion in 2009, Barclays Says

Date: Tuesday, June 2, 2009
Author: Saijel Kishan, Bloomberg.com

Hedge funds may increase assets by more than 8 percent this year as clients led by pension plans and rich families invest $50 billion of the cash they held while financial markets fell, according to a report by Barclays Plc.

Investors have about 14 percent of their assets in cash, according to the survey released today by Barclays Capital, the investment-banking unit of London-based Barclays. Almost 80 percent plan to allocate money to hedge funds in 2009.

“We are seeing that investors are now realizing that hedge funds are surviving as a compelling investment proposition and as an important segment of the broader asset-management industry,” Andrea Gentilini, the New York-based author of the report, said in a telephone interview.

Hedge-fund assets may rise to $1.3 trillion at the end of 2009 after falling to $1.2 trillion in the middle of the year, according to the survey. Hedge funds expect withdrawals to slow to 10 percent of assets this year from 25 percent in the fourth quarter, said Barclays, which interviewed 300 investors and 100 managers representing about half the industry’s assets.

Pension plans, with $437 billion in assets, and wealthy families, which control $72 billion, are likely to lead investments in the industry this year, the report said. Insurance companies, private banks, endowments and foundations are likely to cut their investments. Cornell University said in March that it’s reducing hedge-fund holdings by as much as 25 percent to save on fees after its endowment tumbled last year.

The Standard & Poor’s 500 Index of the largest U.S. companies slumped 39 percent in 2008. Hedge funds, lightly regulated private pools of capital whose managers can buy or sell any assets, lost a record 19 percent, according to Chicago- based Hedge Fund Research Inc.

Hedge-Fund Allocations

The amount of money invested in all asset classes fell about 20 percent to $60 trillion last year, Barclays said. Hedge-fund assets declined 25 percent.

Investors held an average of 2.4 percent of their portfolios in hedge funds at the end of last year, compared with 2.6 percent at the end of 2007. North American endowments and foundations were the largest investors with 14 percent of their money in hedge funds, the bank said.

To contact the reporter on this story: Saijel Kishan in New York at skishan@bloomberg.net