Deutsche Bank has announced the results of its Fourth Annual Alternative Investment Survey conducted in the first half of 2005. More than 1000 representatives from 650 institutions, including pensions, endowments, foundations, family offices and high net worth individuals, funds of funds, insurance companies, banks and consultants participated in this year’s survey.
“We asked investors what they thought the average return would be in the hedge fund industry across all strategies and 68% of them feel the industry will return between 6 – 8% this year,” said John Dyment, global head of Hedge Fund Capital Group at Deutsche Bank. “We analyzed current trends and strategies regarding risk management, fees, performance predictions and asset flows for the survey. Our analysis confirms that the overall health and enthusiasm of the hedge fund industry is not a concern for most survey respondents.”
When ranking the best performing investment strategy for 2005, 35% of investors rank long/short equity as the top performing strategy and 22% rank Macro strategies as a top performer. Multi-strategy hedge funds are emerging as one of the top investment choices for 2005, with investors selecting it because of their ability to move allocations of assets between strategy classes in a dynamic market.
The survey also reports that investors predict Asia, excluding China and Japan, will be the top performing region of 2005. With investment focus on China over the last few years, investors feel the surrounding countries will offer greater opportunities.
Investors also continue to reduce their exposure in convertible arbitrage, with 16% indicated they will add to their convertible exposure when the market bottoms and the massive redemption cycle ends. Investors are becoming increasingly resistant to lock-up periods. In 2004, 68% of investors would only invest in managers with lock-ups of one year or less; in 2005, this number rose to 77%.
European investors are more active investors than their North American counterparts, making more allocations than North Americans, though North American investments are larger on average. And for the fourth year, the three “P’s”, Performance, Pedigree and Philosophy are the leading selection criteria for hedge funds.
Pensions, endowments and foundations are making investment decisions more quickly, with half making allocation decisions in six months or less. Once in, they consistently hold their investments longer than any other investment class. Also, investors are diversifying their allocations to more managers, with the average fund of fund or family office holding investments with 20-100 different hedge fund managers.