Bahraini investment bank Investcorp has slashed its investments in the asset class by more than half.

Investcorp, the largest alternative asset manager in the Persian Gulf region, now boasts a substantially smaller hedge fund portfolio. The US$9 billion firm trimmed its hedge fund investments to US$800 million from US$2 billion.

The firm said it made the cuts to streamline its operations and take better advantage of the economic recovery, and that hedge funds remain a key part of its business plan.

 "The hedge funds team believes that the investment opportunities are extremely compelling in several strategies," Investcorp wrote in its annual report. "The post-crisis era is expected to provide attractive opportunities in strategies such as fixed income relative value, convertible arbitrage and equity market neutral. The team also sees future opportunities in distressed debt."

The firm also said it raised more than US$1 billion during the fiscal year for hedge fund investments.

Still, it is difficult to ignore the huge losses Investcorp’s alternative investments made last year. The bank’s first-ever annual loss totaled US$780.6 million, thanks in no small part to US$393 million in hedge fund losses. It’s private equity business was also soaked in red with a US$288 million loss. The hedge fund losses were suffered in the second half of last year; in the first half of 2009 the funds rose by double-digits.