Deutsche Bank announced today that hedge fund investment clients plan to increase their allocations to emerging markets, with the Middle East predicted as top performer among all regions.
Deutsche Bank’s findings came as part of its annual Alternative Investment Survey which polled more than a thousand investors representing US$1 trillion in hedge fund industry assets. The survey is considered as the most extensive survey of hedge fund investor sentiment in the industry.
Close to 50% of those surveyed were bullish on the Middle East markets, with no firm surveyed indicating that it was planning to reduce its exposure to the region. Twelve percent of those surveyed indicated that they will maintain current exposure levels, and 32% plan to increase it.
Penry Jackson, Managing Director – Global Markets at Deutsche Bank in Dubai said: “The results are a clear indication that global hedge fund investors are extremely bullish on the region. The Middle East is viewed differently from other emerging markets by investors, largely because it is nascent, holds tremendous potential, with very attractive company valuations. While some emerging markets might have peaked, the Middle East is seen as not having realized its full potential yet. We would expect to see many of the traditional barriers to entry in these markets being lowered in the medium term to enable further growth.”
Those most interested in the region were consultants, family offices, high-net worth individuals, and wealth management companies. The Middle East/North Africa is a new listing on the survey for 2008.
Globally, hedge funds investors predicted that Macro, Distressed and Equity Volatility will be the top performing strategies for 2008.
Sixty-one percent of investors indicated that they would opt to invest in macro investment strategies that are less sensitive to the equity markets. Appetite was also high for distressed and equity volatility, which came in second and third place, with 41% and 37% of investors respectively predicting these strategies will perform well. On the other hand asset backed securities focused funds were overwhelmingly expected to be the worst performers.
Overall outlook for the current year remains bearish among 80% of those surveyed, with 40% expecting the world economy to pick up in 2009.
As a result, 30% of investors are holding cash, with over half of the respondents saying that they are willing to eliminate it by March 2009.
This cautious approach is reflected in the increased emphasis among investors on risk management. Hedge fund investors said that the third most important criteria in choosing their manager is risk management, preceded by investment performance and investment philosophy.
Contrasting with their bearish global economic views, most investors were bullish on the hedge fund industry with expectations that it will manage to attract a median inflow of US$ 200 billion in 2008.
Mimicking the trend in the hedge fund industry, 58% of investors said that they would not opt for leverage in their portfolios under the current market conditions.
The survey focused on the following investor categories: banks, corporations and insurance companies; consultants; family offices, high-net worth individuals, wealth management companies; funds of funds; pensions, endowments and foundations.