2014 Could See Largest Net Flows for Hedge Funds Since 2007

In 2014, hedge funds could see the largest amount of net flows since 2007, according to a survey by Barclays Prime Services.

The survey found that investors are expected to allocate up to $80 billion in net flows during 2014, an increase of nearly 25% over 2013, as well as reallocate almost $285 billion during the year.

“2014 could be a great year for hedge fund asset raising,” says Lou Molinari, head of capital solutions at Barclays. “While almost half of our surveyed investors felt that hedge funds performed poorly relative to their expectations in 2013, there appears to be no negative impact. More than 90% of even these disappointed investors plan either to maintain or increase their current hedge fund allocations.”

Approximately 60% of the net flows are expected to come from institutional investors, with public and private pensions expected to account for about 45% of the total. Private investors are expected to make up the remaining 40%, particularly private banks and wealth managers who will allocate estimated net flows of $25 billion in 2014.

“Our report shows that investors are more bullish on the hedge fund industry than in recent years, and we think the challenge posed by outperformance of bond and equity markets may be receding,” says Anurag Bhardwaj, head of hedge fund consulting at Barclays. “However, while equity-oriented and global macro fund managers will probably find it easier to engage investors, other hedge fund managers may need to work harder.”

Survey respondents said they plan to allocate more than half of their net flows to equity long/short strategies, and vent driven equities strategies and global macro strategies follow in popularity. However, the survey found that fixed-income relative value and credit strategy funds should be prepared to fight for reallocations.