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Hedge funds: Investors seek bigger allocations despite fall

Despite negative returns in 2008, hedge funds should bottom out this year and look attractive to many investors compared with other asset classes. Neil Wilson reports on the latest data.

In association with Hedge Fund Intelligence

Assets in global hedge funds dropped sharply during 2008 to finish the year at just over $1.8 trillion, according to HedgeFund Intelligence’s global database. It reveals that the fall in net assets occurred almost entirely in the second half of the year, with a drop of 32.3% from $2.697 trillion at the end of June to $1.826 trillion at the end of December. Assets stood at $2.646 trillion at the beginning of 2008. The decline in assets under management flows from a mixture of negative performance and net redemptions from the industry, as the tumultuous conditions wrought by the global economic crisis had a serious impact on hedge funds in 2008. The mean average returns from hedge funds were close to minus 15% in 2008 – though with huge dispersion in the returns from individual funds, including a significant minority that were up for the year.

As a number of funds have imposed gate provisions or suspended redemptions, assets could fall a further 20% or more from end-2008 levels before the decline is likely to reach a bottom – which we expect to occur some time this year.

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