Unhedged hedge optimism

The current economic and market challenges apparently aren't enough to derail the growth and prosperity of the $2 trillion hedge fund industry, according to a survey of hedge fund managers. While the managers expressed a range of concerns related to marketing and staffing issues, more than 90% of the 305 senior partners at U.S.-based hedge funds surveyed said they expected that "significant" new money would flow into hedge funds this year. The survey results were released last week as part of an "Onward and Upward" report by Rothstein Kass & Co. PC. "What we discovered is that while nearly two-thirds of respondents have a generally negative outlook for the U.S. economy during the balance of 2008, the vast majority of senior hedge fund managers are unfazed by ongoing volatility," said Howard Altman, co-managing principal of the New York-based accounting firm. Nearly 90% of respondents cited marketing and brand image as crucial to the future success of the industry, and 75% of those surveyed said they expected that it would become more difficult to attract and retain talented people. The total number of hedge funds, estimated at more than 22,000, grew by 14.5% last year, according to PerTrac Financial Solutions, a New York-based developer of asset allocation and investment analysis software. Nearly 75% of survey respondents said they thought that growth in 2008 would outstrip that of last year, and just 25% predicted more fund closures, compared with 2007. "Competition for investors is also likely to increase as more funds featuring diverse investment strategies continue to saturate the marketplace," Mr. Altman said. "In this environment, hedge funds will likely become more expensive to operate in 2008 — a view that is shared by over 66% of survey respondents." Just 1% of those surveyed said they thought that hedge fund fees would trend downward this year.