Despite poor returns last year, 2012 is poised to be the year of the hedge fund. “Investors may add about $80 billion of new capital to hedge funds globally this year, the most since 2007,” Businessweek reports.
Hedge funds, on average, lost just over 4% in 2011, making it the second-worse annual performance on record, but investors appear confident. “About 56 percent of investors surveyed by Barclays plan to increase such investments in the coming year, more than seven times the number that plan to reduce their allocations,” writes Businessweek. “Investors may also reallocate about $300 billion of existing investments to hedge funds within the same strategies or across strategies.”
The survey found that “global macro and systematic and volatility funds may be the biggest recipients of new capital as investors look to allocate money to short-term traders with lower correlation to stock markets.” Smaller hedge funds are also likely to see increases in investment. Investors are expected to invest increasingly more money into hedge funds with less than $1 billion in assets, continuing the trend seen last year when smaller funds “doubled their share of the net industry inflows to 18 percent last year over 2010.”
“Smaller managers are frequently seen by investors to be more agile in adapting their existing strategies to generate alpha,” says Louis Molinari, the head of capital solutions for Barclays’ prime services division. ‘With the greater transparency and better fee and liquidity terms that many new and smaller funds offer, investors continue to gain confidence with investing in this segment of the hedge fund industry.”