Hedge Fund Managers and Allocators: Expect Good Returns in 2005

March 22, 2005 (PLANSPONSOR.com) - Although some industry analysts predict further lackluster growth in the hedge fund sector, a poll of hedge fund managers and allocators shows that some don't agree, with 80% predicting steady or increasing returns.

According to a poll conducted at the GAIM USA conference in Janaury, 33% of hedge fund managers and allocators think that returns will top 10% in 2005. Eighty-nine percent believe that assets into the industry will grow, a belief backed up by many an industry analyst, as institutional investors start to find their footing in the space. However, a majority are still worried about potential problems with the money coming in, with 57% suggesting that “performance mediocrity” was the greatest challenge facing the industry as a whole.

The survey also indicated good news for investors, with 57% of those polled believing fees – often 2% for management and 20% of profits – will decrease in the coming year.

As institutional investors move into the space, what do industry leaders see as the best route to success? Almost half (48%) believe fund-of-funds are the best way for new investors to enter the hedge fund arena, while only 17% consider direct investment as the most prudent was to do so. They also see referrals from other investors as an important way to pick a manager (with 41% stating this as their reason for choosing a certain manager), while 23% cited capital services and 18% citing consultants.

Hedge funds are also seen as being used in many different ways. Thirty-two percent of those polled considered them a separate asset class, while 13% utilize portfolio alpha and 12% consider them a substitute for equities.

What are the top strategies for 2005, according to those polled? Global macro, the darling of the New Year, is picked by 43% as a strategy that will perform well in 2005, followed by CTA, at 35%.

Concerns over hedge fund transparency still exist however, with only 35% of those polled stating that the degree of information available on these alternative investments is adequate.

The GAIM USE conference is a meeting of hedge fund managers and allocators; in January, the conference hosted 800 individuals from such firms. The poll was conducted by Rocaton Investment Advisors.