confident in the ability of their portfolios to deliver strong
returns in 2008 despite being extremely bearish on the outlook for
the wider market.
The findings of this year’s Deutsche Bank Alternative Investment
Survey, which drew opinion from across funds of funds, family
offices, high net worth individuals and other financial
organisations, reflect current market uncertainty. Some 80 percent
of investors say they are bearish on the global economy in 2008, a
sentiment borne out by the $16.5 billion in hedge fund inflows seen
in Q1 – the lowest such figure for four years.
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Yet investors nonetheless expect a median industry inflow of some
$200 billion across 2008 as a whole. Belief in the validity of
their own strategies also remains high: investors predict a 7.5
percent return for the hedge fund industry in 2008, but a 10
percent return for their own portfolios, a median of survey
responses indicates.
The global outlook is little clearer for 2009, despite 40 percent
of respondents believing that the economy will improve. Almost a
quarter (23 percent) maintain a bearish stance while 37 percent are
uncertain.
Acknowledgements of current difficulties, then, remain the central
focus of investor attitudes. Risk management has this year become a
major manager selection criterion for the first time since the
study was launched in 2002, while 70 percent of hedge fund
investors are not currently leveraging their portfolios.
Over 30 percent of hedge fund investors say they are currently
holding cash, though half this number plan to invest it again
within the next 12 months. Deutsche says that respondents appear
“cautiously poised”.
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By GlobalDataEquity strategies will remain popular – 95 percent of investors
include some type within their hedge fund portfolio – but opinion
is becoming increasingly polarised; 30 percent of investors believe
that equity long/short will perform well in 2008, yet 29 percent
believe that this will be the worst performing strategy over the
course of the year.
With equity market performance in 2008 a matter of some debate,
equity volatility strategies are gaining currency, with 35 percent
of investors intending to increase investments in the strategy this
year.
Only macro and distressed strategies found more favour with survey
respondents, with the former seen as the top performers this year
and some 60 percent of investors looking to increase their
allocations to distressed funds. Merger arbitrage is expected to be
a poor performer and just six percent intend to increase
allocations to this strategy.
Emerging markets are understandably attracting more attention as
investors look to reduce exposure to North America and Western
Europe. The Middle East and North Africa is predicted to be the top
performing region in 2008; 32 percent of respondents are intending
to add investments to the region over the course of the year.
Similarly, 32 percent are looking to add to their Asia ex-Japan
investments, though interest in China has fallen, with 23 percent
looking for hedge funds focused on the country compared with 35
percent in 2007.
