Hedge funds are a broad group of investment vehicles pursuing a wide variety of investment strategies. Last year, while the S&P 500 surged about 13% due to gains in consumer confidence and housing rebound in the U.S., hedge funds left well behind. So in this article, let`s take a look at what is expected for 2015.
Deutsche Bank Survey
According to Deutsche Bank (DE, Financial), the global hedge-fund assets could increase 7% this year, citing findings from its 13th annual alternative investment survey. The survey polled 435 hedge fund investors, representing over USD 1.8 trillion in assets under management (AUM). Respondents include asset managers, public and private pensions, endowments and foundations, insurance companies, fund of funds, private banks, investment consultants and family offices.
A few days ago, we saw that total assets in hedge funds surpassed $3 trillion for the first time on record in May 2014, according to a report from eVestment. In 2014, they added more than $88 billion, according to data compiled by the investment consultancy.
Highlights
Hedge funds are expected to surpass $3 trillion by the end of the year. They are expected to grow at a rate of 7%, drawing $60 billions of net inflows this year (last year AUM expanded at 8%, with $76 billions of net inflows and 3.3% return).
Investors expect funds to generate returns of 5.2% and almost 40% of these investors plan to increase their allocation to hedge funds industry.
When looking at regions, investors are planning to allocate more to Asia (about 30% from 19% last year) and 25% investors by AUM plan to raise allocations to China over next 12 months, up from 11% last year. In India, 26% of the investors (by AUM) said they will expand allocations into this country, up from 4% the previous year.
Human Capital
Last year, the average hedge fund returned 3.33%, but the top 5th percentile generated returns greater than 22% and part of this is explained very simple: management.
Mathematical Finance
Almost one of three respondents is planning to increase the allocation to quantitative strategies in 2015. Three of them include: commodity trading advisor (CTA), quant equity market neutral and quant equity.
Final Comment
Hedge funds look particularly attractive for a diversifier investor. The fact that the hedge fund universe includes a wide variety of financial assets strategies makes it difficult for them to outperform in a bull market.
The truth is that hedge funds have not been able to beat the market in the latest years. Hedge fund industry assets set to surpass  $3 trillion and we still expect this industry beats the market this upcoming year due to good initial results in January.
Disclosure: Omar Venerio holds no position in any stocks mentioned.
