Global hedge fund assets under management will bottom out around the middle of this year as investors return to the embattled asset class, a new survey shows. But those investors are expected to demand more for less money.
Barclays Capital said its survey of hedge fund investors and managers show that the latter expect industry assets to sink to $1.2 trillion by the middle of the year before rebounding and leveling off at $1.3 trillion by the end of the year. More than $50 billion in new money is expected to pour into hedge fund coffers this year, as the redemption rate continues to slow. But that won’t be enough to keep the hedge fund industry from ending the year smaller than it started. Hedge fund managed $1.4 trillion on New Year’s Eve, according to Barclays.
Much of the new money is expected to come from pension funds, the survey of 100 hedge funds managing $700 billion in assets shows, while traditional hedge fund champions such as North American foundations and endowments cut back. And with those new clients come new, and potentially painful, demands for hedge fund managers.
The Barclays survey shows that respondents will not be satisfied with a simple reduction of standard hedge fund fees of 2% for management and 20% for performance. They are pushing for annual performance targets that hedge funds must meet before charging incentive fees, as well as a waiver of performance fees during lockups of three years or more.
On the bright side, the survey shows that redemptions should fall to 10% of assets under management this year, down from a quarter of assets in the fourth quarter of 2008. And of the 300 investors surveyed between December and March, 80% say they plan to redeploy some of the cash in their portfolios to hedge funds.