Hedge funds are expected reach a record breaking $3 trillion by the end of this year, as compared to $2.6 trillion last year, said a report.
Deutsche Bank’s 12th annual Alternative Investor Survey said this is based on investors’ predictions of $171 billion net inflows and performance related gains of 7.3 per cent.
Nearly half of institutional investors increased their hedge fund allocations last year, and about 57 per have planned to grow their allocations in 2014, it said.
Institutional investors now account for two thirds of industry assets, compared to approximately one third pre-crisis.
The survey found that investors were happy with hedge fund performance, with 80 per cent of respondents stating that hedge funds performed as expected or better in 2013, after their allocations returned a weighted average of 9.3 per cent in 2013.
About 63 per cent of respondents, and 79 per cent of institutional investors, are targeting returns of less than 10 per cent for their hedge fund portfolios this year. Equity long short and event driven are the most sought after strategies, said the survey.
More than 39 per cent of investors were found to be embracing a risk-based approach to asset allocation, up from 25 per cent last year. About 41 per cent of pension consultants recommended it to their clients, it said.
Over 400 investor entities participated in the survey, representing over $1.8 trillion in hedge fund assets and over two-thirds of the entire market by assets under management.
Barry Bausano, co-head of Global Prime Finance at Deutsche Bank, said: “Hedge funds continue to establish their growing position within the broader asset management industry, alongside some of the more mainstream asset managers. The hedge fund industry is predicted to reach a record $3 trillion by 2014 year end driven by significant inflows, most notably from institutional investors.”
Conducted by Deutsche Bank’s Global Prime Finance business, the survey identifies trends among a growing and evolving hedge fund investor base. The respondents included asset managers, public and private pensions, endowments and foundations, insurance companies, fund of funds, private banks, investment consultants and family offices.