Investors to add billions to hedge funds

Date: Wednesday, March 17, 2010
Author: Reuters

Investors around the world may put as much as $222 billion into hedge funds this year, Deutsche Bank (DBKGn.DE) said on Tuesday.

If the German bank's projections are correct, it would mark the first time since the start of the financial crisis in 2007 that pension funds, endowments and wealthy investors add more money to these loosely regulated portfolios than they remove.

"We estimate the inflow figure to be closer to $222 billion, taking the industry to $1.72 trillion this year," the bank said in its 2010 Alternative Investment Survey that was released to clients on Tuesday.

Investors polled by the bank predicted inflows of more than $100 billion, the survey found.

Investors' renewed appetite for hedge funds comes after the average portfolio gained 20 percent last year, marking the industry's best returns in a decade. In 2009 hedge funds delivered their worst returns ever when the average fund fell 19 percent. Investors pulled $131 billion out of hedge funds last year after removing over $150 billion in 2008, according to data from Hedge Fund Research.

Three quarters of the investment consultants polled by Deutsche Bank said their clients are ready to put more money into hedge funds. Many pension funds, for example, look to hedge funds to help boost their returns.

The money will likely start flowing in the next six months when investors are expected to cut the amount of cash they hold now by roughly $3 billion, the survey said.

Deutsche said it polled roughly 600 investors who control about $1.1 trillion in assets.