Emerging Hedge Fund Managers Like Equities, China

Jan 23 2007 | 9:36am ET

Emerging hedge fund managers have trouble raising money, but when they do, they are increasingly likely to invest in index products, according to the second annual Emerging Hedge Fund Manager Survey from Vanthedge Point Group.

Seven in 10 emerging managers called raising capital and marketing the most difficult part of their job, according to the poll, the overwhelming majority of respondents to which manage less than $100 million. More than half are of the truly emerging variety, with less than $10 million in assets under management.

And more and more are using index products, with the number rising to 62% from 44% a year ago. Another 8% are considering adding them.

Emerging managers are on the lookout for a continued real-estate market slowdown and inflation as indicators to how the economy will fare. And though they are ambivalent on the direction of the U.S. economy—some 57% indicated they are neutral, and only 33% are bullish—emerging managers expect to make their money in U.S. stocks this year.

Of those surveyed, 44% think U.S. equities will be the top performing asset class, exactly the same portion that are neutral on U.S. markets. Best bets include technology, financial services, consumer goods, food and beverage, and defense stocks.

Automotive, real estate, energy, and home building and furnishing names number among the less-than-good bets. Emerging managers are especially bullish about large- and small-cap stocks.

International stocks are emerging hedge fund managers second favorite (31% pick it as 2007’s top class), with China, Japan and Eastern Europe as top picks, and Latin America and Russia deemed dogs. Meanwhile, the smaller, younger hedge fund management firms are fleeing real estate (27.9% predict it as the worst-performing asset class), high-yield debt (24.6%) and commodities (21.3%).

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