Investors may almost triple the amount of capital they put into hedge funds this year, boosting industry assets to a record, an annual survey by Deutsche Bank AG showed.
Hedge funds may attract $171 billion of net inflows and generate $191 billion in performance-related gains, according to 413 investors globally with $1.8 trillion of industry assets polled by the German bank in December. The combined effect will help boost assets by 14 percent to $3 trillion by year-end, the survey showed. Last year, the industry drew $63.7 billion of net deposits, according to Hedge Fund Research Inc.
The increase in allocations predicted would be the largest into hedge funds since 2007, based on data from Chicago-based HFR. The optimism follows the best industry return in three years and the growing trend of investors folding hedge funds into their stock or fixed-income allocations, the survey said.
“With the majority of investors happy with hedge-fund performance, we expect institutional investors to further strengthen their commitment to hedge funds,” Anita Nemes, global head of the Deutsche Bank’s hedge-fund capital group, said in an e-mailed statement.
Eighty percent of investors in this year’s survey said hedge funds met or exceeded their performance expectations for 2013. Their hedge-fund investments returned 9.3 percent on a weighted-average basis last year, beating the 9.2 percent target in the previous year’s survey.
Global hedge funds had $2.6 trillion in 2013, according to HFR. Investors in the Deutsche Bank survey are targeting a 9.4 percent return for this year.
Forty-seven percent of the investors increased their hedge- fund assets in 2013, while 62 percent plan to do so this year, according to the survey. Investors have diversified holdings to weather the low-yielding and uncertain market environment after the 2008 global financial crisis, it said.
Thirty-nine percent of the investors in the survey now allocate to stock-focused hedge funds as part of their equity investments and credit-focused strategies as part of fixed- income holdings, the survey showed. That was a 14 percentage point increase from last year’s survey.
“This means investors are effectively removing percentage allocation constraints to hedge-fund strategies, enabling significant growth potential for alternatives within their portfolios,” Angharad Fitzwilliams, Hong Kong-based director of Deutsche Bank’s hedge-fund capital group, said in an e-mail.