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Barclays Capital Survey: Hedge fund industry increasingly optimistic about 2011

Monday, January 31, 2011
Opalesque Industry Update – Barclays Capital survey shows bullish expectations for returns and allocations, increased hiring, new product launches and relatively steady leverage

Barclays Capital announced the results of surveys conducted at the firm’s inaugural Hedge Fund Symposium hosted in New York, showing hedge fund managers’ and investors’ expectations for the industry in 2011.

Ajay Nagpal, Head of Prime Services at Barclays Capital, commented, “The investment environment for hedge funds is much better than it was 24 months ago. The results of our survey, combined with comments from both hedge fund managers and investors show considerable positive momentum in the hedge fund industry.”

The majority of the surveyed managers and investors reported optimism about the hedge fund industry’s prospects for growth in 2011. Key findings from managers attending the Symposium included:

• Two thirds of managers expect to deliver gross returns of 10 – 15%, while ~30% expect to deliver outsized returns of 15% or higher
• A majority of managers (56%) plan to maintain current leverage levels, while 33% plan to increase it
• More than half (60%) of the surveyed managers reported plans to increase headcount in 2011, with a focus on investment personnel
• Two thirds of managers plan to launch new products in 2011, with almost half (45%) of new launches expected to focus on emerging markets; global macro, equity long/short and multi-strategy were the least popular areas for new product launches
• Managers expect the most attractive investment opportunities in 2011 to be in North America (39% of responses) and Asia Ex-Japan (35%)

The polled investors also reported optimism about the industry:

• 49% of investors planned to increase their allocations to hedge funds in 2011, with endowments and foundations, and insurance funds the most likely to increase their allocations (82% in the case of endowments and foundations and 64% in the case of insurance funds)
• The majority of respondents from endowments and foundations, private banks and insurance funds reported planning to increase the number of managers they allocate to, while a majority of pension funds respondents planned to maintain the number of managers to which they allocate
• Insurance funds look likely to start investing more directly to individual hedge funds, with 43% reporting they planned to decrease their allocations to funds of hedge funds (FoHFs)
• If current trends continue, small and emerging managers can expect a sanguine outlook for 2011 – over the past two years, more than one third of investors have allocated to managers with less than $100 million in AUM
• More than one-third of investors – mostly FoHFs – have invested in managers with less than a one-year track record; another 40% said they require only one to three years’ track record
• Investors appear most interested in adding allocations to Event Driven strategies (67% of Investors), Emerging Markets (50%), Global Macro (54%), and Equity L/S (51%)

Louis Molinari, Head of Capital Solutions in Prime Services at Barclays Capital said, “In spite of the increased optimism, hedge fund managers and investors attending our Symposium reported that they are still wary of a number of uncertainties ahead. Top of mind for our respondents included regulation, inflation and deflation risks, the changing importance and possible overheating of emerging markets, and the continuing economic uncertainties facing the developed world.”

The 275 investors surveyed at the Symposium represent $880 billion of hedge fund assets under management (AUM), while the 200 hedge fund managers surveyed represent $225 billion in AUM. The two day Symposium, held in New York in October, was attended by senior international hedge fund investors and managers.

Barclays Capital’s Prime Services business provides clients across the globe with an integrated and cross-asset class offering for financing, clearing and execution. The firm offers unique frameworks for asset protection, margining solutions, industry intelligence and insight, analytics and execution technologies. Barclays Capital has been recognized for its leadership in numerous industry polls and surveys, including Best Prime Broker Technology provider at HFM Week magazine’s 2009 & 2010 European Service Provider Awards, 44 Best in Class Awards in the 2009 Global Custodian Prime Brokerage survey, and 106 Best in Class Awards in the Global Custodian OTC Derivatives Prime Brokerage survey.

(press release - 14th January, 2011)

Barclays Capital is the investment banking division of Barclays Bank PLC. With a distinctive business model, Barclays Capital provides large corporate, government and institutional clients with a full spectrum of solutions to their strategic advisory, financing and risk management needs. Barclays Capital has offices around the world, employs over 25,000 people and has the global reach, advisory services and distribution power to meet the needs of issuers and investors worldwide. www.barclayscapital.com


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