Hedge funds are likely to see at least $61 billion of new allocations as investors led by family offices and pension plans look to redeploy cash balances built up during the recent market dislocation, according to a Barclays Capital report.
While family offices and pensions are expected to be the most active allocators in 2009, insurance companies, private banks, endowments and foundations are all likely to decrease their allocations to hedge funds, it said.
Other key findings included figures which showed investors’ average hedge fund allocation stood at 2.4 per cent at the end of 2008, down 20 basis points from the end of 2007.
Global hedge fund assets under management are expected to level off at $1.57 trillion by the end of 2009, the report said.
Though the traditional “two and twenty” (2 per cent management fee and 20 per cent charge on any profits earned) model survived, managers will be encouraged to embrace creative structures to promote transparency and better align incentives.
Investors expressed a sharp trend away from highly leveraged and high beta strategies into simpler, more liquid strategies and those which focus on opportunities in dislocated markets, notably distressed and directional credit.
Still, some Australian financial planners remain sceptical of the asset class.
The Salisbury Group authorised representative Michael Parnell said he is still wary of hedge funds for a number of reasons.
“If I’m going to recommend something I want to see transparency and I want to see them outperform over the long term and I think as a whole most hedge funds don’t,” he said.
The Barclays Capital report is the result of market analysis and interviews with around 300 investors and 100 hedge fund managers, representing nearly $850 billion of hedge fund industry assets.
