Hedge fund managers are attracting new money and preparing expansion plans, even though their performance has fallen behind roaring equity markets this year, thanks to a shift in how investors view the industry.
Funds brought in $360bn this year in investment returns and inflows from investors, an increase of 15.7 per cent on their assets under management at the end of 2012, according to new figures from the data provider Preqin.
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The continued growth comes as investors lower their expectations of returns from hedge funds and instead view them as a way of increasing diversification and reducing volatility in their portfolio.
Interest has increased as equity market valuations have risen sharply and bond market returns are threatened by future interest rate rises.
As a result, hedge fund managers are positioning themselves for another bullish year in 2014, with one quarter of firms planning to launch additional funds next year, and an overwhelming majority expecting further inflows from wealthy individuals and institutional investors, according to Preqin's survey of fund managers and investors.
"We are seeing a shift in how investors view hedge funds," said Amy Bensted, head of hedge funds at Preqin. "Pre-2008, investors thought of them –and hedge funds marketed themselves – as a source of additional returns.