Last year was one of the worst on record for hedge funds, but the industry appears to be shrugging off the bad times. According to Deutsche Bank's latest Alternative Investment Survey, hedge fund assets are expected to rise 12 percent to a record $2.26 trillion this year.
One of the most notable changes in the hedge fund industry recently has been its composition, Anita Nemes, Global Head of Capital Introduction at Deutsche Bank, told CNBC.
“Ten years ago, hedge fund investors were mainly wealthy individuals. Fund-of-funds and family offices made up 85 percent of hedge fund investor respondents in our survey (back then),” Nemes said, adding that the number was under 50 percent for 2011.
Interestingly, institutional investors, like pension funds and sovereign wealth funds, are increasing their investment in hedge funds, from 11 percent ten years back to 34 percent in 2011, Nemes said.
Another notable trend change is that only 5 percent of hedge funds manage 90 percent of the industry’s assets, according to Nemes.
“We’ve seen tremendous amount of consolidation over the past few years,” she said.
Alternatively, investors are looking to hedge funds with increased experience, Nemes pointed out.
“What we’re seeing is that with increased experience comes increased confidence. And indeed in this year’s survey, half the respondents had over 10 years’ experience,” she said.
“But there is demand for new funds. And the reason there is demand for new funds is because Fund-of-Funds and (end) investors don’t want to have the same portfolio as everybody else does. And also there is some fear that some of these funds potentially aren’t performing very well,” she added.
“What hedge fund investors look most for more and more is better risk-adjusted returns over the cycle,” Nemes said. “So even though last year wasn’t great, over the past three years hedge funds have done better in regards to risk-adjusted returns and global equities, for example.”