For 72% of investors, diversification to other asset classes remains the main benefit of investing in hedge funds.
According to the seventh Deutsche Bank Alternative Investment Survey: These results [are] very promising signs for the hedge fund industry. Firstly, whilst the correlation across all asset classes increased significantly at the height of the crisis in 2008, the Hedge Fund Research Index (HFRI) outperformed both the S&P 500 and the MSCI World for 2008. So, whilst many hedge funds collectively ended the year in negative territory, the losses were on average far less severe than those of other asset classes.
This has been particularly well recognised by investors who have both long only and hedge fund portfolios.
Secondly, the small but significant number of hedge funds that generated returns anywhere between 5% and 50% last year demonstrates that it is possible for hedge funds to generate absolute returns even in the most severe market conditions.
The results of the survey also highlighted that size matters. 50% of the respondents invest in hedge funds with an average AUM of between USD800mn – USD4bn, ensuring the larger funds continue to grow.
The survey was conducted during February 2009 by the Bank’s Hedge Fund Capital Group. Approximately 1000 investors responded to this year’s survey, including funds of hedge funds, family offices, banks, wealth management companies, consultants, pensions, insurance companies, foundations, and corporations.