Hedge fund investors are feeling bearish, more wary of managers’ risk management measures, sitting on cash and expect to increase their allocations to emerging markets, according to a new survey.
The Deutsche Bank poll of 500 investor firms worldwide, representing nearly $1 trillion in hedge fund assets, found that 80% of are bearish and just 40% expect the global economy to pick up in 2009. Investors have also added risk management as major manager selection criterion, in addition to investment performance, and managers’ pedigrees.
Investors are also sitting on high cash levels and taking a “wait and see” attitude to hedge fund investing. However, 53% of investors holding cash now plan to eliminate their cash holdings over the next 12 months, suggesting a renewed focus to make allocations to hedge funds.
Also, the majority of investors surveyed plan to increase their allocations to emerging markets, with the Middle East as the predicted top performer amongst all regions. Hedge fund investors predict that macro, distressed, and equity volatility will be the top performing strategies for 2008.
“Hedge fund investors are cautiously poised, as shown by their increased focus on risk management and plans to allocate to strategies which are not sensitive to equity market risk,” said Maarten Nederlof, New York-based co-head of the Hedge Fund Capital Group at Deutsche Bank. “We also found that despite their overall bearish outlook on the economy, investors predicted more than $200 billion will flow into the industry.”