Investors want hedge funds in another name

AsianInvestor and Clifford Chance have unearthed a discrepancy about attitudes in the region towards hedge funds.

Our recent poll of institutional investors, fund managers, business executives and service providers finds a general expression of revulsion at hedge funds. One question asked respondents what three asset classes would attract investor assets in the coming 12 months. Only 3% ranked hedge funds as the most likely asset class -- compared with, say, distressed/opportunity funds, debt capital markets or equity capital markets.

When adding up people's second- and third-place rankings, hedge funds and funds of hedge funds came well below these other classes, and below private equity.

We also asked "Do you think the hedge fund industry will change?" to which 91% said "yes". We asked how, and most responses involved reduced performance and management fees, and making strategies more liquid.

Yet other questions suggest that investors will want the thing that hedge funds provide: absolute returns. We asked people what strategy would see the most inflows in the next 12 months for both equities and for bonds: ETFs, passive, unlisted/private, active management or active absolute return. For equities, active absolute returns won the most votes (30%); it came in second for fixed income with 33% (active management was the post popular strategy for bonds).

"People still want the panacea of absolute returns," observes Mark Shipman, funds partner at Clifford Chance. "They want to be able to make money in all environments. But if investors are not accepting of hedge funds, it's not clear what investors would do to obtain absolute returns otherwise."