Last year was something of a roller coaster for hedge funds. In spite of myriad troubles, including battles over regulation, a very notable collapse, and seesawing, disappointing returns, assets continued to pour into the sector. According to Deutsche Bank’s fifth annual Alternative Investment Survey, the latter trend is expected to continue.
“Despite a series of setbacks and scares in 2006, survey respondents feel the hedge fund industry will continue to grow modestly in 2007,” said John Dyment, global head of DB’s hedge fund capital group. “Investors indicated that they are keeping the market and industry events of 2006 in perspective and using risk management as a key factor in selecting hedge fund managers.”
Investors expect long/short equity strategies to deliver this year, with 18% predicting it will be the top-performing strategy in 2007. Macro and event-driven/relative value funds are also highly regarded, with 13% and 12%, respectively, picking them as the top performers. Regionally, the survey shows investors remain bullish on emerging Asian funds.
As for putting their money where their mouth is, investors are expected to pour money into China-focused and merger arbitrage funds, with inflows of 38% and 20%, respectively. Credit arbitrage won’t be so lucky, with the survey predicting a 13% outflow.
Credit arb isn’t the only thing investors aren’t thrilled about: The survey shows 39% of investors think hedge funds making private-equity investments is bad news. But investors are open to the growing trend of publicly-listed funds, with half saying they’d consider switching from the traditional limited partnership model. And more than half are OK with longer lockups, as the number willing to accept lockups of two years or longer more than doubled.