Assets under management in the hedge funds industry will hit a nadir of $1 trillion by the end of the second quarter before rebounding to $2.6 trillion by 2013, a report predicted on Monday. An industry study by The Bank of New York Mellon and research firm Casey Quirk estimated that 60 percent of inflows in the period to 2013 will go to funds of hedge funds, investment products designed to spread risk and diversify exposure to the sector.
The report authors interviewed 158 people throughout the industry, including institutional investors, consultants, family offices lawyers and prime brokers. It found that 81 percent of investors said their reason for buying in hedge funds remained intact even as the industry reels from its worst year on record. Hedge fund assets fell to $1.4 trillion at end-2008 from $1.87 trillion at end-2007, according to data from Hedge Fund Research.
The industry suffered a record quarterly outflow of $150 billion in the last three months of the 2008 as investors become increasingly risk averse and were forced to withdraw money to satisfy liquidity requirements. In the global financial crisis 80 percent of redemptions have come from high net worth and retail investors compared to 17 percent from institutions, the report said.
US-based institutional investors will provide net inflows to the industry in 2008 and 2009 and be the largest source of inflows between 2010 and 2013, the report said. European high net worth individuals have been the biggest source of outflows so far while the redemption rate among Asian high net worth investors is also high at over 30 percent. In both cases redemptions were driven by the widespread use of structured notes with automatic redemption triggers while in the United States.
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