Hedge Fund Investors Eye Middle East Markets

May 21 2008 | 12:24pm ET

Hedge fund investors plan to increase their allocations to emerging markets, with the Middle East predicted as top performer among all regions, according to a new Deutsche Bank survey.

Almost half of the more than 1,000 consultants, family offices, high-net worth individuals and wealth management companies polled were bullish on the Middle East markets, with none said they were planning to reduce their exposure to the region. In fact, 12% of those surveyed indicated that they will maintain current exposure levels while 32% plan to increase it.

“The Middle East is viewed differently from other emerging markets by investors, largely because it is nascent, holds tremendous potential, with very attractive company valuations,” said Penry Jackson, a managing director at Deutsche Bank in Dubai. “While some emerging markets might have peaked, the Middle East is seen as not having realized its full potential yet. We would expect to see many of the traditional barriers to entry in these markets being lowered in the medium term to enable further growth.”

Globally, investors predicted that macro, distressed and equity volatility will be the top performing strategies for 2008. Sixty-one percent of investors indicated that they would opt to invest in macro investment strategies that are less sensitive to the equity markets. Appetite was also high for distressed and equity volatility, which came in second and third place, with 41% and 37% of investors respectively predicting these strategies will perform well.

On the other hand, asset-backed securities funds were overwhelmingly expected to be the worst performers.

Overall, investors were bearish in their outlook for the current year with 40% expecting the world economy to pick up in 2009. As a result, 30% of investors are holding cash, with over half of the respondents saying that they are willing to eliminate it by March 2009.


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