Hedge Fund Clients Say Industry Assets to Reach $2.1 Trillion

Global hedge-fund assets may rise 12 percent to $2.13 trillion by year-end as “challenging” market conditions prompt investors to stick with the industry even after many funds suffered losses in 2011, according to a survey by Credit Suisse Group AG.

The increase in assets is expected to come from positive investment performance and net inflows, the Zurich-based bank said in a statement today. Credit Suisse’s findings are based on a survey of more than 600 clients with about $1.04 trillion invested in hedge funds.

Europe’s sovereign debt crisis and concerns about slowing economic growth in the U.S. caused hedge funds to lose 5.2 percent on average in 2011, the second-worst annual return since Chicago-based Hedge Fund Research Inc. began tracking industry data in 1990. The performance hasn’t scared off pension funds and other investors, who still say hedge funds can provide protection from wide market swings, Credit Suisse said.

“Institutional investors remain positive on hedge funds and on the outlook for further industry growth,” Robert Leonard, Credit Suisse’s (CSGN) global head of hedge fund capital services, said in the statement. “They continue to look to hedge funds to generate uncorrelated returns and to reduce overall volatility within their portfolios.”

Last year’s performance has prompted investors to reduce their expectations for hedge funds, with clients predicting that funds on average will gain 8.6 percent in 2012. Respondents to the same survey released by Credit Suisse a year ago estimated hedge funds would rise 11 percent in 2011. In the year-ago survey, investors also erroneously predicted that hedge fund assets would rise to $2.3 trillion by the end of 2011.

Hedge funds investing in Asia and emerging markets are the most appealing to investors, according to this year’s survey.

So-called crowded trades, in which a number of hedge funds make similar investments, were cited as one of the biggest risks to the industry, Credit Suisse said. Other top concerns included the possibility of a sovereign default and counterparty risk, the survey found.

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