The hedge fund industry could see up to US$80 billion in net flows during 2014 – an increase of nearly 25% over 2013, and the largest amount since 2007 – as well as almost US$285 billion of reallocations during the year, according to a survey by Barclays’ Prime Services business.
Presented in their latest report, Waiting to Exhale. Combined, the total amount of ‘money-in-play’ for the industry could approach US$365 billion, the survey results indicate.
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Lou Molinari, head of Capital Solutions, said: "2014 could be a great year for hedge fund asset raising. 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% of even these disappointed investors plan either to maintain or increase their current hedge fund allocations."
The survey results presented in Waiting to Exhale show that approximately 60% of the net flows are expected to come from institutional investors, with public and private pensions likely to account for ~45% of the total.
The remaining 40% 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 US$25 billion in 2014.
Anurag Bhardwaj, head of Hedge Fund Consulting, said: "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. 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."
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By GlobalDataInvestors 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.
Waiting to Exhale 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 US$490 billion; data from 50 different, papers, publications and filings; and hedge fund performance data from multiple hedge fund databases.
