Hedge funds badly underperformed the broader markets last year, but that's OK with investors, according to a new survey.
In fact, investors plan to reward the hedge fund industry with record asset levels, even though they don't expect hedge funds to do any better this year than last, Deutsche Bank's annual alternative investments survey shows. Clients expect to add about $171 billion in new money this year which, combined with about $191 billion in performance gains, should push hedge funds past a major milestone.
"The hedge fund industry is predicted to reach a record $3 trillion by 2014 year-end, driven by significant inflows, most notably from institutional investors," Deutsche Bank prime brokerage co-head Barry Bausano said.
The poll contained some other surprises. Notably, investors were by-and-large pleased by what some considered sub-par returns last year. The average hedge fund rose less than 10% in 2013, compared to more than 30% for the Standard & Poor's 500 Index. But 80% of survey participants pronounced themselves "happy" with the lower returns. Sixty-three percent said they expect sub-10% returns again this year.
That isn't dissuading them, however: More than half of the institutional investors polled plan to raise their hedge fund allocations this year.