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Hedge fund assets seen reaching $3 trillion this year -survey

Tuesday, 18 Feb 2014 | 4:15 PM ET

BOSTON, Feb 18 (Reuters) - Hedge fund industry assets are expected to reach a record $3 trillion by year's end as investors plan to add fresh money, saying they were generally happy with last year's returns and don't expect bigger gains this year, a new survey shows.

Investors polled by Deutsche Bank said they expect the bump in assets to be fueled both by new money and by performance related gains.

Hedge funds managed $2.6 trillion in assets at the end of 2013 and investors said they expect to see $171 billion in net inflows and $191 billion in performance-related gains this year, according to the survey released on Tuesday.

"The hedge fund industry is predicted to reach a record $3 trillion by 2014 year end driven by significant inflows, most notably from institutional investors," said Barry Bausano, co-head of Deutsche Bank's Global Prime Finance unit which conducted the survey for the 12th time. Deutsche's survey is one of the most closely watched in the industry, particularly for its forecasts on growth in assets.

Last year the industry was roundly criticized for returning only 9.3 percent when the Standard & Poor's 500 index gained 32 percent. But 80 percent of the respondents said they were "happy" with the numbers as they found their funds performing better than expected or as expected last year.

For years hedge funds made headlines with outsized returns, but the marketing of these funds has taken on a different tone in recent years with many managers promising to lose less in down markets even if they make less in up markets.

This year, which started with the Hennessee Hedge Fund index dipping 0.18 percent in January while the S&P 500 fell 3.56 percent, the majority of respondents expect to see similar returns to last year. Sixty-three percent of the respondents are targeting returns of less than 10 percent his year.

Despite the expectations of relatively modest returns, more than half of the surveyed institutional investors said they plan to raise their allocations to hedge funds this year, the bank said.