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Half of Hedge Funds Skittish on 2012: Survey

Roughly 48 percent of hedge fund managers surveyed indicated that 2012 will be a difficult year for the sector, with nearly 40 percent expressing concern that the U.S. could enter a 'double-dip' recession.

This was the finding of a survey of 400 hedge fund managers representing 771 hedge fund vehicles that was conducted by Rothstein Kass, a solution provider to the alternative investment community. The firm published its sixth annual report on hedge fund industry trends, entitled. "Hedge Funds 2.0: Evolution in Action."

According to Rothstein Kass: "Findings suggest that amid ongoing economic uncertainty, hedge fund managers continue to find opportunity, as slightly more than 66 percent of respondents indicated that they plan to raise assets by 25 percent or more this year. Nearly one-third of hedge fund managers do not plan to use leverage in 2012, while over half intend to use less than 2:1 leverage this year."

Among the survey's notable findings:

- Nearly 80 percent of respondents believe seeding is critical to a successful launch this year

- UCITS vehicles, despite their popularity in Europe, have yet to infiltrate the U.S. marketplace. Of the 400 hedge fund firms and 770 funds polled, only 17 UCITS products were reported

- The percentage of women and minority owned firms remains low, at 5.8 percent and 10.3 percent, respectively. However, firms that have launched in the last three years are three times more likely to report 50 percent or more women and minority ownership

"In the months following the global economic meltdown, many observers predicted doom for the hedge fund industry, with some anticipating that a more aggressive regulatory agenda and challenging market conditions would lead to significant attrition," says Howard Altman, Co-CEO of Rothstein Kass and Principal-in-Charge of the Financial Services Group.

He continues: "This year, our research shows an industry that continues to benefit from institutional asset flows and efforts to enhance transparency. At the same time, managers are cognizant of the challenges that lie ahead, as legislative efforts move from theoretical to reality."

More than 70 percent of survey participants report assets under management (AUM) under $500 million, with the remainder reporting AUM in excess of $500 million.

Findings suggest that increasing asset flows from pension funds and other institutional investors continue to fuel demand for enhanced transparency. Nearly a third of hedge fund managers polled believe that investor due diligence will take six or more months to complete. Regulatory developments also weigh heavily on managers, as over half indicated concern about the scope and frequency of reporting requirements.

More than 40 percent suggested that they are concerned about the staffing and resources that will be required to comply with enhanced reporting requirements. Approximately 30 percent of funds with less than $100 million AUM have registered with the SEC, according to the research.

"Hedge fund managers are often confronted with a growing array of responsibilities that can detract from the overall focus on generating investment returns. For many institutional investors, operational and reporting capabilities are as important as investment performance. With competition for capital intense and due diligence processes expanded, the imperative for all funds -- especially emerging managers -- to 'act institutional' in all respects has never been greater," says Altman.

He continues: "Fortunately, we're seeing the emergence of a new generation of hedge fund managers that are well-equipped to tackle this challenge. These professionals have grown up within the hedge fund sector, developing the specialized expertise required to position their firms for success in the future."

"A major part of the hedge fund industry allure is the diversity that the community has come to represent. The sector's proliferation means that there are funds and strategies suited to a wide range of specific investment objectives. Until very recently, however, this diversity has not extended to the number of women in senior roles at hedge fund complexes. One of the most encouraging findings of our latest research suggests that women are finding increased opportunity at emerging hedge funds," says Kelly Easterling, Principal-in-Charge of Rothstein Kass' Walnut Creek office.

She adds: "From our experience, we're seeing growing interest from entrepreneurial women seeking to launch hedge funds, as well as growing consensus that greater concentrations of women in the industry will bring needed perspective as the sector continues its evolution."

Phil Albinus is the former editor-in-chief of Advanced Trading. He has nearly two decades of journalism experience and has been covering financial technology and regulation for nine years. Before joining Advanced Trading, he served as editor of Waters, a monthly trade journal ... View Full Bio

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