Best year ahead for hedge funds since 2007 – Barclays

Barclays’ Prime Services team predicts up to $365bn of ‘money-in-play’ for hedge funds in 2014, with up to $80bn in net flows and $285bn in reallocations.

The hedge fund industry could see up to $80bn in net flows during 2014 – an increase of nearly 25% over 2013, and the largest amount since 2007 – as well as almost $285bn of reallocations during the year, according to the latest report from Barclays’ Prime Services business, Waiting to Exhale. Combined, the total amount of ‘money-in-play’ for the industry could approach $365bn.

“2014 could be a great year for hedge fund asset raising,” said Lou Molinari, head of Capital Solutions. “While almost half of our surveyed investors felt that hedge funds performed poorly relative to their expectations in 2013, there appears to be no negative impact. More than 90% of even these disappointed investors plan either to maintain or increase their current hedge fund allocations.”

According to Waiting to Exhale, approximately 60% of the net flows are expected to come from institutional investors, with public and private pensions likely to account for 45% of the total. The remaining 40% of net flows are expected from private investors, with private banks and wealth managers set to be one of the biggest sources of capital for hedge fund managers, with expected net flows of $25 billion in 2014.

“Our report shows investors are more bullish on the hedge fund industry than in recent years, and we think the challenge posed by outperformance of bond and equity markets may be receding,” added Anurag Bhardwaj, Head of Hedge Fund Consulting. “However, while equity-oriented and global macro fund managers will probably find it easier to engage investors, other hedge fund managers will need to work harder.”

Investors surveyed for Waiting to Exhale reported that they plan to allocate more than half of their net flows to equity long/short strategies. Event driven equities strategies will likely also benefit from strong net flows, and global macro strategies remain popular for their diversification benefits. However, managers of fixed-income relative value and credit strategy funds should be prepared to fight for reallocations, according to the report.

Waiting to Exhale was compiled from a survey of 190 investors and detailed one-on-one conversations with an additional 30 investors, representing hedge fund AUM of about $490bn; data from 50 different, papers, publications and filings; and hedge fund performance data from multiple hedge fund databases.



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