Despite concerns over slow economic growth and the Eurozone sovereign debt crisis continuing to hit hedge fund performance, a recent Preqin survey of over 60 institutional investors revealed a positive outlook for the hedge fund industry in 2012.
In the wake of poor returns in the latter half of 2011, investor satisfaction with hedge fund performance decreased, with 40% of investors surveyed having received lower returns than expectated in 2011, which was comparable to 2008 levels. Therefore, in response to the challenging conditions created by market volatility, investors retained a degree of scepticism towards the asset class over 2011. However, despite this dent in institutional confidence, overall investor sentiment towards the asset class remained positive. In 2011, 20% of those interviewed stated that their confidence in hedge funds has increased since 2010, compared to 14% stating that it had decreased. Furthermore, around two-thirds of investors said that their confidence towards hedge funds had remained unchanged since 2010. Therefore despite the challenging conditions experienced in 2011, investors remain confident that the asset class will meet their portfolio objectives.
Institutional investors have demonstrated their ongoing faith in the asset class through planned increases in allocations over 2012. Hedge fund managers can expect a large influx of capital into hedge funds from institutional sources over the next 12 months, with 38% of investors interviewed by Preqin planning to increase the amount of capital invested in hedge funds over the course of 2012. In addition to this, over half of investors also plan to keep their allocations to hedge funds the same. Hence net inflows are expected to remain positive over 2012, reaching higher levels than we have seen in any year since the market downturn. Therefore even in times of heightened global market volatility, institutional investors remain committed to investing in hedge funds, and will continue to push hedge fund assets towards the pre-crisis watermark of $2.6 trillion.