Global hedge fund managers are optimistic for industry performance in 2008, citing distressed securities, global macro, long/short equity, and emerging markets as the likely best performing strategies.
A majority of hedge fund managers estimated the Emerging Markets strategy as having a net-of-fee return of over16%, with 10.1%-13.0% returns for the Long/Short Equity, Global Macro, and Event-Driven strategies.
Hedge fund managers identified Distressed Securities, Global Macro, Long/Short Equity, and Emerging Markets as the likely top-performing strategies in calendar year 2008.
Managers identified the most important challenges they have faced so far in 2007 as being the recovery from the credit crunch and its wide repercussions, in addition to crowded trades in marketable securities.
A majority of managers (39.7%) cited the enforcement of independent marks on security pricing and asset evaluation as the most important recommendation they would make to any international body looking at enforcing industry regulations and scrutiny.
Fund-of-hedge-funds respondents did not reveal any significant change to their manager turnover in the aftermath of the credit market-related turmoil. The majority of respondents indicated the turnover of managers remained fixed at a 10.1%-20.0% annual rate.
A majority of managers did not indicate any significant change in their portfolio leverage, although those with higher levels of leverage (6.1x-8.0 x) did indicate some delivering in the wake of the credit crunch.
A clear majority of survey respondents (64%) anticipated the institutional segment will constitute over 30% of their fund investors over the next three years. A relative majority of panelists pointed to increased compliance (and presumably the associated costs) as being the biggest single threat to their alternative fund business, arising from the trend to institutionalization.
Over a quarter of survey respondents were clearly not impressed by the recent discussion about the viability and competition of hedge fund products mimicking the risk/return profile of hedge funds.
Hedge fund managers’ responses showed a clear bias toward higher rather than lower allocations to hedge funds by pension funds.
A large majority of respondents did not foresee any threats from the convergence of traditional long-only business into the hedge fund industry.
Over 31% of survey respondents indicated they had imposed rigorous risk management standards in the aftermath of the credit market-related turmoil, with about 27% enforcing more stringent measures permanently.
A number of managers (25.2%) expect their Long/Short Equity substrategy to enjoy the biggest inflows of European hedge funds over the next six months.
Article written by Aureliano Gentilini and Ferenc A. Sanderson