Deutsche Bank survey indicates 2004 investing trends

Long/short equity and risk arbitrage strategies are expected to see the greatest
inflows of capital this year, according to a survey by Deutsche Bank.

Long/short equity and risk arbitrage strategies are expected to see the greatest
inflows of capital this year, according to a survey by Deutsche Bank.

For the second year in a row, respondents indicate they will continue to reduce
their exposure to US-domiciled hedge funds and increase their exposure to
European and Asian-domiciled funds.

The 2004 Institutional Alternative Investment survey was conducted in the
fourth quarter of 2003 and was published this month by Deutsche Bank’s
Equity Prime Services Group.

The survey offers statistical insights into respondent characteristics, direct
investment tendencies, due diligence preferences, expected portfolio
allocations for 2004, hedge fund structured product usage, and services
currently used and demanded by hedge fund investors

A total of 323 institutions including funds of funds, family offices, banks,
endowments, consultants, insurance companies and others participated this
year. More than half of the respondents have allocated capital to hedge funds
for over five years.  44% of those surveyed reside outside of the US (vs. 38% last
year) and based on Deutsche Bank’s estimates these investors represent more
than USD 380 billion in assets or at least half of the global industry.

John Dyment, Global Head of the Hedge Fund Capital Group at Deutsche
Bank: said: "This year’s survey provides insight into developing trends with
regards to risk management, fees, performance predictions, and asset flows.
Based on this year’s results, we believe investments into hedge funds will
continue to be robust throughout 2004."

Highlights of this year’s survey results include:

* 25% of investors now say their typical hedge fund allocation is USD 20
million or more.

* Only 21% of respondents normally allocate to a hedge fund at inception
and 38% specify that capacity guarantees are one of the main reasons
they allocate capital to start-ups.

* 51% of respondents report holding periods of three or more years vs. 60%
in 2003.

* Although 32% of investors are willing to lock-up capital for more than one
year, 71% are willing to pay an exit fee for early redemption.  Some are
willing to pay up to a 3% early redemption penalty.

* 38% of survey participants have allocated to a hedge fund within the first
month of due diligence and 20% take at least 6 months or more to
complete the due diligence process.

* The vast majority of those surveyed require a fee structure with a high
water mark.

* 15% of investors now require their hedge fund investments to be in funds
that are registered investment advisors.

On the subject of Due Diligence preferences:

*  Investors interview a large number of managers prior to making a single
allocation. Almost 60% of investors spend over 3 months conducting due
diligence on a hedge fund before they invest. Many interview hundreds
of funds to only make a dozen allocations.

* Funds of Funds typically conduct over 450 meetings with managers to
make just 15 allocations.

* For third year in a row, those surveyed continue to focus on the three
"P’s" of hedge fund election: Philosophy, Pedigree, and Performance.

* Surprisingly, less than 1% of the respondents look at fees when
assessing a hedge fund manager.

* More than half of the investors surveyed actively manage their hedge
fund holdings and 53% revaluate their portfolio on a monthly basis.

* Similar to last year, almost all participants require some level of
transparency from their hedge fund managers and indicate risk and
strategy drift monitoring as paramount concerns.

On Portfolio Allocations for 2004:

* The portfolio allocation to Asian-domiciled managers is expected to
increase by 33% from 9.4% to 12.5% while allocations to US-domiciled
funds are expected to decrease by 8%.

* Over 50% of investors plan to increase allocations to Long/Short Equity
managers, 44% plan to increase portfolio allocations to Risk Arbitrage,
and 40% to Global Macro.

* 35% of those surveyed indicate a decrease in investments to distressed
debt while last year 44% said they would increase their portfolio
allocation to distressed debt.

* No net change in convertible arbitrage is expected this year.

* Credit Derivative Arbitrage will register increased inflows as 28% of
participants indicate they will increase their investment in this relatively
new strategy.

* Although the performance of fundamental Market-Neutral Long/Short
Equity hedge funds lagged last year, 30% plan to increase their allocation
to this strategy.

On Structured Products and Service Requirements:

* Leverage is the most commonly used structured product by investors.

* Investors continue to identify most new hedge funds through word of
mouth and prime brokers offering capital introduction.

* 65% of respondents indicate a need for enhanced risk reporting from
administrators.

Background Note: With roughly USD 864 billion in assets and approximately
68,500 employees, Deutsche Bank offers its 13 million clients financial services
in 76 countries throughout the world. Deutsche Bank ranks among the global
leaders in corporate banking and securities, transaction banking, asset
management, and private wealth management, and has a significant private &
business banking franchise in Germany and other selected countries in
Continental Europe. Deutsche Bank Securities Inc. is the investment banking
and securities arm of Deutsche Bank AG in the United States.