Hedge fund assets may hit $2.1 trillion in 2012: survey

Date: Tuesday, February 28, 2012
Author: Tommy Wilkes, Reuters

Hedge fund assets under management could reach $2.13 trillion at the end of the year, as investors put more cash into the industry and managers report positive returns, a survey conducted by Credit Suisse (CSGN.VX) showed on Monday.

The survey, which covered more than 600 institutional investors representing $1.04 trillion of hedge fund assets, found that investors expect their hedge fund portfolios to return 8.6 percent in 2012, down from 11 percent last year.

This positive performance, together with new investor cash, means the sector will grow by around 12 percent from a year earlier -- adding about $200 billion worth of assets.

"Institutional investors remain positive on hedge funds and on the outlook for further industry growth. They continue to look to hedge funds to generate uncorrelated returns and to reduce overall volatility within their portfolios," Robert Leonard, managing director and global head of capital services at Credit Suisse said.

The survey also asked investors, which include pension funds and family offices, their preferred strategies for 2012.

More than a quarter of respondents said global macro funds, which make calls on global economic events with bets on bonds, currencies, commodities and equities, would be the best performers, while 19 percent selected long-short equities and 18 percent emerging markets, the survey showed.

Global macro, where the likes of industry giants Brevan Howard, Moore Capital and Tudor Investment operate, is also the most sought-after strategy for 2012.

This is ahead of computer-driven funds that bet on futures markets, known as Commodity Trading Advisors, and fixed income arbitrage strategies, which wager that tiny price dislocations in bond markets will correct themselves, and was one of the few sectors to finish last year in the black.

"One of the big bugaboos for investors was the high degree of correlation between long-short (managers) and equity benchmarks," Leonard said.

CTA and macro funds generally provide less correlation with wider equity markets.

Concerns that hedge funds, which generally charge higher fees than long-only managers, are overly correlated with each other is also the biggest risk facing the industry, the polled investors said, ahead of sovereign default risk and counterparty concerns.

Asia and emerging markets are the two most popular areas for hedge fund investments, the survey showed, while investors plan to cut their holdings in European-focused strategies as the region's debt crisis threatens more volatility.

Investors also expect a rise in the number of hedge funds that will merge or liquidate in 2012, although this will largely affect smaller managers that have failed to increase their assets to any significant size.

Despite many hedge funds performing poorly last year -- when the average fund lost close to 5 percent, according to industry tracker Hedge Fund Research -- only 5 percent of those surveyed by Credit Suisse expect funds will end the year in the red.