Hedge Fund Investors Unworried About Returns

Date: Wednesday, July 13, 2005
Author: Dow Jones Newswire

NEW YORK -(Dow Jones)- Hedge fund investors across the board are not concerned about the overall health of the asset class and plan to increase their allocations again this year.

These are the findings released Wednesday by Deutsche Bank AG (DB), which polled 650 investment firms, including pensions and endowments, banks and insurance companies, funds of funds, high net-worth individuals and family offices. Altogether, these represent some $645 billion dollars of the estimated $1 trillion industry.

While 67% of investors felt that large asset flows depress returns, a similar percentage believed that the asset class will still return between 6% and 8% in 2005. This compares with a return of 9.03% last year and a massive 19.55% in 2003, according to data from Hedge Fund Research, Chicago.

Hedge fund investors also plan to increase allocations over the year, with the smaller investors, defined as those with assets under $500 million, expecting to increase the proportion of their hedge fund investments as a percentage of their overall portfolio investments by an average 6.26%.

Larger investors plan on smaller proportional increases - an average 2.17% increase in the case of the biggest investors, defined as those with over $5 billion in assets under management, Deutsche Bank said.

The most popular strategy among investors was long/short equity - which involves buying certain stocks long and selling others short across the equity spectrum, and one in which managers may also use futures and options to hedge their positions. Sixty-eight percent of investors polled had allocations to this strategy, which was also predicted to be the best-performing for the year.

Investors continue to reduce their exposure to convertible arbitrage, which those polled predicted would be the worst performer in 2005. However, 16% of investors indicated they would add to their convertible exposure when the market bottoms out and the massive redemption cycle ends, which they estimate will be later this summer, said Deutsche Bank.

Regionally, Asia, excluding Japan and China, is predicted to be the best performing region in 2005 with India, Korea and Singapore offering greater opportunities than China, which has been the investment focus over the last few years.

-By Marietta Cauchi, Dow Jones Newswires; 201-938-2129; marietta.cauchi@ dowjones.com

(END) Dow Jones Newswires