Hedge Funds Gear Up For Up To $50 Billion In New Investments
Hedge funds are smaller, healthier, and more flexible when it comes to negotiating their fees than they were a year ago. That's likely to attract investors like flies this year, according to two recent industry reports.
Hedge funds may see around $50 billion of capital added to their bases in 2009, mainly from ultra high net worth investors such as rich families, according to a recent survey conducted by Barclays. The bank expects assets under management at hedge funds to rise to $1.3 trillion vs. a $1.2 trillion trough earlier this year.
"We are seeing that investors are now realizing that hedge funds are surviving as a compelling investment proposition and as an important segment of the broader asset-management industry," Andrea Gentilini, the New York-based author of the report, told Bloomberg.
Some of that optimism in the industry may be the result of what investors perceive to be more flexibility among the funds' managers. Two-thirds of investors are more likely to negotiate fees paid to money managers. Still, more than half of investors intend to increase capital allocations to managed accounts, and none intend to decrease allocations, according to another recent survey carried out by Credit Suisse.
Credit Suisse surveyed investors holding $947 billion in hedge fund investments. "It is now a more sustainable industry in which there are fewer excesses and a better alignment of interests between [investors and managers]" the bank wrote in the report.
Apart from the funds which were invested in credit derivatives and other toxic mortgage-related products, hedge funds seem to have survived the credit crisis relatively intact. Their ability to short shares, and to store cash for extended periods seems to have to paid-off in survival terms, if not in the multi-million dollar earnings the funds experienced during the boom times.
In March, Citigroup estimated that hedge funds were hoarding $294 billion in cash. The bank said that the funds would invest just $82 billion of those funds by the third quarter this year.
The latest reports follow recent departures in the industry by key players opting to "go it alone" in much smaller firms funded by private family offices or exclusively by managers' capital.
Some of those smaller firms may attract investors sooner than they hoped: 78 percent of investors surveyed by Credit Suisse said that they could invest in a fund with just $100 million under management, while 27 percent said that they could invest in funds with as little as $25 million in assets.
Related Reading at BNET Finance: