Hedge fund returns are expected to rise in 2007, but investors should be cautious and take neutral positions in their portfolios in the next 12 months, according to Citigroup Inc.’s wealth management group. Citigroup seeks an average return of 10 percent this year, up from a predicted gain of more than 9 percent in 2006. But the 10 percent figure will still fall short of the 11.4 percent average return recorded in the past decade.
A strong stock market, mergers and acquisition activity will all help boost hedge funds, says Ray Nolte, CEO of the fund of hedge funds group at Citigroup Alternative Investments. Also, capital held by private equity funds will help support event-driven equity and merger-focused managers.
“Having the right managers may add greater value to a fund of hedge funds portfolio than the actual strategy allocations,” says Nolte in Citigroup’s hedge fund publication. “We recommend a basket approach to hedge funds that spreads risk across assorted managers and strategies.”