Hedge Fund Survey Report Indicates Increased Optimism

July 21st, 2010
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Contributed by: Emerging Manager Focus
A Rothstein Kass annual survey report finds that the hedge fund industry is continuing to recover from the 2008 global market crisis. With more than 80% of respondents predicting more fund launches this year than in 2009 and less than 20% of survey participants expecting more funds to close this year than in 2009, a steady recovery is expected.

The report, conducted between February and April of this year, featured the findings of senior managers from 381 hedge fund firms. Respondents included portfolio managers, research directors, chief operating officers, chief financial officers and other executives. Topics included capital raising intent, operational issues, the current regulatory environment and personal philanthropy.

The “2010 Hedge Fund Outlook: Back to the Future?” found that more than 67% of hedge funds surveyed plan to raise additional investment capital this year. Firms included in the survey reportedly show 77% assets under management under $500 million and roughly 23% reporting assets under management in excess of $500 million.

“While nearly 70% of hedge fund professionals we polled still expect 2010 to be a difficult year, there are signs that conditions continue to improve. However, it is unclear that the crisis has had a profound impact in the sector and its practices,” said Howard Altman, Co-CEO and Co-Managing Principal of Rothstein Kass.

Altman also says that with the changing industry comes high demand, “The industry continues to absorb lessons from a period of intense demand for liquidity. For many funds a wave of redemption requests served as a reminder of the importance of attracting aligned investors with objectives and risk tolerances that are consistent with those of the fund.” Capital is said to generate from the institutionalization of the hedge fund business, with larger established funds more likely to attract assets from pensions, endowments and benefit plans.

The fourth annual report also discusses the trends of the high net worth community, “High net worth individuals and families seem to gravitating toward the family office model when considering allocations to alternative investments, recognizing the advantages of pursuing alternative investments as a component of an overarching wealth management strategy,” said Mr. Althman.

“In addition, the slower pace of redemptions has alleviated immediate liquidity concerns and restored fund stability, allowing funds to devote more substantial resources to core portfolio management activities and to evaluating operational best practices.”

Other notable findings include:

Nearly 70 percent of survey participants indicated that hedge fund launches in 2010 will be smaller than before the credit crisis

Approximately 71 percent of hedge funds expect hedge funds launching in 2010 to be more reliant on seed capital

80 percent of firms surveyed indicated that hedge funds will use significantly less leverage than prior to the crisis

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