NEW YORK (HedgeWorld.com)– Large percentages of investors in alternatives expect great performance from macro, distressed securities and long/short equity managers in the next six months, according to a survey conducted by Deutsche Bank in the last quarter of 2002. Multi-strategy funds, commodity trading advisers and volatility arbitrage managers are also seen as top performers.
The 376 survey participants have hedge fund assets of more than US$350 billion in total. “This is perhaps the largest survey done, in terms of assets invested in hedge funds,” said John Dyment, Deutsche Bank’s global head of capital introduction services.
Funds of funds were the largest group among the participants, accounting for 50% of the sample. Family offices are a growing presence at 16%. Endowments and foundations were 10%; banks, 7%; and pension funds, 5%. “We’re still waiting for the expected big inflow from pensions,” commented Mr. Dyment.
Not surprisingly, investors expect to increase allocations to strategies that they predict will do well in the coming months. Over 50% plan to put more money into long/short funds, 48% into macro, 45% into multi-strategy market neutral, 44% into distressed debt, and 37% to commodity trading advisers. Some indexes show poor performance in 2002 for long/short and distressed, but Mr. Dyment said survey participants based their opinions mostly on established funds that do not report to index databases. New managers are having a tougher time raising seed capital, compared to a couple of years ago. Half of those surveyed provided startup money for new hedge funds in the past, but fewer are doing so now.
Some managers’ perception that most investors tend to pull out quickly was not confirmed. The survey shows that 60% of investors keep their hedge fund investment for three years or more. Moreover, funds of funds holding periods are similar to those of family offices and insurance companies, with close to 70% of all three groups holding for more than three years.
Allocators appear to be shifting the geographic focus of their hedge fund portfolios toward Europe and Asia and away from North America, to some extent. Current allocations are about 67% to the United States, but investors expect this to fall to 62%, while the share of Europe rises from 18% to more than 20% and Asia to 7.4% from 5.6%.
People are attracted by new hedge fund products in Europe and Asia, explained Mr. Dyment. If U.S. markets continue to be troubled, Asian markets could offer opportunities and Asian managers may have a competitive advantage, he said.
Among investor concerns, fund of funds fees vs. returns is an issue that has become more important, as funds of funds performance was flat this year. Lack of transparency also remains a barrier to investment.
Despite such hurdles, 62% of those surveyed said they will increase their alternative asset allocations this year. The average amount directly invested in hedge funds is growing, with the percentage of investors that typically allocate over US$20 million now at 24%, compared to 21% in a similar 2001 Deutsche Bank study.