The hedge fund industry could see up to USD80bn in net flows during 2014 – an increase of nearly 25 per cent over 2013 and the largest amount since 2007 – as well as almost USD285bn of reallocations during the year.
These figures are the findings of a survey conducted by Barclays’ Prime Services business, presented in its latest report, Waiting to Exhale.
Combined, the total amount of “money-in-play” for the industry could approach USD365bn, the survey results indicate.
“2014 could be a great year for hedge fund asset raising,” says Lou Molinari, head of capital solutions. “While almost half of our surveyed investors felt that hedge funds performed poorly relative to their expectations in 2013, there appears to be no negative impact. More than 90 per cent of even these disappointed investors plan either to maintain or increase their current hedge fund allocations.”
Approximately 60 per cent of the net flows are expected to come from institutional investors, with public and private pensions likely to account for around 45 per cent of the total. The remaining 40 per cent of net flows are expected from private investors, with private banks and wealth managers set to be one of the biggest sources of capital for hedge fund managers, with expected net flows of approximately USD25bn in 2014.
“Our report shows that investors are more bullish on the hedge fund industry than in recent years, and we think the challenge posed by outperformance of bond and equity markets may be receding,” says Anurag Bhardwaj, head of hedge fund consulting. “However, while equity-oriented and global macro fund managers will probably find it easier to engage investors, other hedge fund managers may need to work harder.”
Investors surveyed for Waiting to Exhale reported that they plan to allocate more than half of their net flows to equity long/short strategies. Event driven equities strategies will likely also benefit from strong net flows, and global macro strategies remain popular for their diversification benefits. However, managers of fixed-income relative value and credit strategy funds should be prepared to fight for reallocations, according to the report.
The report was compiled from a survey of 190 investors and detailed one-on-one conversations with an additional 30 investors, representing hedge fund AUM of about USD490bn; data from 50 different, papers, publications and filings; and hedge fund performance data from multiple hedge fund databases.