Report: Many HF Managers Expect Difficult 2012

Apr 25 2012 | 10:53am ET

Many hedge fund managers are expecting 2012 to be a tough year.

Almost half (48%) of the 400 managers (representing 771 hedge fund vehicles) polled by the New Jersey-based financial services group Rothstein Kass said they expected 2012 to be difficult.

Nearly 40% of the managers expressed concern the United States could enter a double-dip recession.

Hedge Funds 2.0: Evolution in Action, Rothstein Kass’ sixth annual report on hedge fund industry trends, queried participants on a broad range of topics including investment outlook, operational issues and regulatory concerns.

Despite the economic uncertainty, however, over 66% of respondents said they planned to raise assets by 25% or more this year. Nearly one-third of hedge fund managers do not plan to use leverage in 2012, while over half intend to use less than 2:1 leverage this year.

“In the months following the global economic meltdown, many observers predicted doom for the hedge fund industry, with some anticipating that a more aggressive regulatory agenda and challenging market conditions would lead to significant attrition. At that time, Rothstein Kass stood out as one of the few voices that forecast that the hedge fund community would emerge from the crisis stronger than ever. Our confidence was instilled over decades spent working closely with the sector, and was reinforced by our long-standing view of the industry’s institutionalization,” said Howard Altman, co-CEO of Rothstein Kass. “This year, our research shows an industry that continues to benefit from institutional asset flows and efforts to enhance transparency. At the same time, managers are cognizant of the challenges that lie ahead, as legislative efforts move from theoretical to reality.”

Over 70% of survey respondents had assets under management under $500 million, while the remainder reported assets in excess of $500 million.

The report suggests that managers continue to respond to the demands of institutional investors for greater transparency—almost one-third of the managers polled said investor due diligence will take six or more months to complete.

As for the impact of new regulations on the industry, over 50% of respondents expressed concern about new reporting requirements. Another 40% expressed concern about the staffing and resources necessary to comply with such requirements. The poll showed that about 30% of funds with AUM under $100 million have registered with the SEC.

Among other findings, the study revealed that 80% of respondents believe seeding is critical to successfully launching a hedge fund this year and that UCITS vehicles, despite their popularity in Europe, have yet to have much impact on the U.S. market—of the 400 hedge fund firms and 770 funds polled, only 17 UCITS products were reported.

The percentage of women and minority owned firms remains low, at 5.8% and 10.3%, respectively. On the other hand, firms that have launched in the last three years are three times more likely to report 50% or more women and minority ownership



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