Investors predict $260bn hedge fund asset growth this year, says Deutsche Bank study

The hedge fund industry will this year modestly outpace its long-term annual asset growth rate of 12.3%, even though 2011 was the industry’s second worst year on record, according to the annual industry survey from Deutsche Bank.

Hedge fund investors seem to be concentrating more on early 2012 – when hedge funds posted their best monthly figure in two years – and on difficult macro-economic times expected ahead.

Against such backdrops, respondents to the annual industry review published today by Germany’s largest bank said they expected the industry to growth from about $2trn now, to $2.26tn by year’s end.

Since 2002 – when Deutsche first published its annual review – assets in the sector grew by 12.3% a year, on average, from $625bn.

Anita Nemes, global head of capital introduction at Deutsche Bank said this year respondents expected to put about $140bn of fresh money into the industry, and for about as much ($110bn) also to come from performance.

But the asset growth is not expected to be evenly shared between small and large funds.

Nemes said, for example, raising seed capital is more difficult now than it was 10 years ago.

But is is easier than it was just last year, she added.

“A lot of people have come back or entered the seeding market for the first time, and a lot of them are funds of funds.” 

Nemes said funds of funds still have a role in the industry, and while the most important one is naturally performance, they could also continue differentiating themselves through identifying, and financing, young managers, or offering advisory-type services.

Institutional investors seem to appreciate this ability and offering – four years ago, half of fund of funds said over half their money came from institutional sources, whereas by last year 62% of the fund of funds respondents to Deutsche Bank’s survey said more than half came from such sources.

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