The predictions come as the trade evolves beyond its entrepreneurial, private roots to meet investor and regulator demands for greater transparency and more robust operations.
A recent Citigroup survey predicted that hedge funds could lure $2trn in new money to investment vehicles long associated with mutual-fund companies and other institutional managers including “long-only” funds that buy and hold stocks. The poll of investors, consultants and money managers concluded further growth will come from institutional investors such as pension funds and endowments, and may also earmark an additional $1trn as they grow more assured and comfortable with the different risks posed by those strategies.
On average, hedge funds gained 2.54 percent until May this year, while stock-focused funds were up 1.77 percent on average, according to HFR. According to the figures, May losses are eating into strong first-quarter gains by those funds.
By comparison, the Standard & Poor’s 50-stock index rose 5.15 percent in the same period, including dividends.
The performance follows three years in a row in which hedge funds on average lagged behind the overall market – though funds posted losses that were about half as large as the drop in the overall market in 2008.
Amanda Haynes-Dale, managing director of Pan Reliance Capital Advisors, a New York-based boutique fund of hedge funds, said she believed such industry growth was possible, but would depend on performance.
“Money comes in at the top and goes out at the bottom,” she said. “It’s human nature – it doesn’t matter what the investment vehicle is.”