The hedge fund industry’s growth will continue from last year well into 2014, according to a recent survey. Hedge Fund Alert polled 68 managers, investors, bankers, and service providers, with 20% predicting the total amount of capital managed by the global hedge fund industry will increase to at least $3 trillion by year’s end. That would mean a boost to industry capital of over 20% based on the latest Hedge Fund Research estimate of $2.51 trillion in industry assets.
The average of all survey respondents landed at $2.84 trillion in assets under management by year end, putting the growth rate of the industry at 13%. Hedge Fund Research data highlighted in the Hedge Fund Alert report show that in the third quarter of 2013, “gains in invested capital accounted for more than $70 billion of the $94 billion increase in global hedge fund assets,” while inflows of net new capital amounted to $23 billion.
Survey respondents also noted that talented managers have proven before that they can find profitable investments regardless of the competition. “The unconstrained nature of hedge fund strategies allows managers to evolve over time and seek new opportunities,” said Jeff Chan, a vice president at EnTrust Capital. “For example, given the successful track record of the activist strategies, activist managers are able to invest in larger companies today, where such companies were not realistic investments in the past. When evaluating managers, investors should pay attention to the scalability of their strategies over time.”
On the operations side of things, compliance and risk management ranked as the biggest areas of concern for the managers. “We believe the biggest operational challenge is matching your infrastructure to the always-fluctuating assets of the business,” said Zvi Rhine, founder of startup Sabra Capital. Another respondent, Sydney McConathy of Beacon Hill Financial, said hedge funds face growing competition from more-regulated fund structures. “The biggest operational challenge facing general partnerships is how to deal with the flux of new capital investing in ’40 Act and UCITS strategies with far greater liquidity, transparency and lower fees,” he said. “The last stat I heard was that the AUM of ’40 Act hedge funds alone is estimated to be $2 trillion by 2020.”
Read more about the annual survey in this week’s edition of Hedge Fund Alert.