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www.privateairny.com Private Air New York | Summer 2015 26 We can expect another year of hedge fund asset growth through this year and into 2016 according to some analysts and hedge fund insiders. Most agree that this year will have a positive outlook and anticipate continued hedge fund growth and expansion into new product lines and markets. According to eVestment's 2015 Hedge Fund Industry Outlook, aside from an unexpected global or financial event, asset flows into hedge funds are expected to be at least between $90 billion and $110 billion as we end 2015 and begin the New Year. It would have been hard to imagine this prediction last year based on three impactful events. e first was a strong market rotation that presented itself in March and April of 2014 leading to losses in both short and long equity funds. Secondly, there were macro traders who were expecting rate normalization that never materialized. And third, the collapse in oil prices came as a surprise to many fund managers who were unprepared for the price free fall. All three of these should have spelled gloom for the current market, but according to eVestment, it is the long-term trends driven by institutional portfolio allocation decisions that determines the hedge fund industry growth. e Trend for Hedging e pundits love to bash what they see as hedge funds' relatively high fees in relation to performance and the secretive and scandalous world of these types of investments. However, the first quarter of 2015 proved to be an indicator with even more money pouring into hedge funds. e company eVestment is predicting that investors will still add close to $100 billion or more to hedge funds this year, pushing assets to a record $3 trillion. Although hedge funds under performed the S&P 500 Index last year and the largest US pension, California Public Employees' Retirement System, divested from this asset class, investors are expected to increase their allocations this year. at is because of institutional investor's desire to gain alternative exposures to traditional equity and fixed income markets in the face of rising equity market valuations, compressed spreads, and low interest rates, that according to eVestment's Industry Outlook report. Additionally, access to credit, lower oil prices, and an improvement in employment conditions are boosting consumer confidence. Investor Outlook e eVestment Outlook report, which uses information from over $22 trillion of traditional, institutional strategy assets and an additional $2 trillion of alternative fund assets, reveals that in the past five years, the first of the year has had light inflows, but this past January, investors added $1.19 billion into hedge funds during the month. e total in hedge fund assets increased 0.22% bringing the industry's total asset under management to $3.033 trillion. e largest managed futures funds, those with greater than $1 billion in AUM (assets under management), continued to perform extremely well with returns near 6% in January and over 16% in the last six months. "e hedge fund industry is, barring the occurrence of an outlier event, well positioned for another year of solid growth," says Peter Laurelli, eVestment's Vice President and head of research. "Our report shows that institutional investors have allocated nearly $80 billion to GTAA, (global tactical asset allocation), products in the last two years, more than any other segment except global fixed income, and ahead of emerging markets and global equity. Producing industry leading returns in the final months of last year and entering 2015 with an elevated level of global economic and political uncertainty, should at least bring macro and managed futures funds into the conversation." So if hedge funds overall are expected to do well still this year, what funds will shine the brightest? According to an eVestment prediction, which has proven to be true, the universe of macro funds has seen inflows sooner and in greater size than their managed futures peers in 2015. "If equity and credit fund flows combined are less than 2014,"states Laurelli, "and we believe flows will be within the range of 2013/2014 averages, then where else will money head? If traditional strategy flows for the last two years, along with a dominant trend in hedge fund inflows are a useful guide, then multi-strategy hedge funds appear to be headed for another good year." Global balanced strategies in the last two years have been investor favorites from traditional asset managers and multi- strategy hedge funds and have had positive investor interest nearly every month of that span. e group's diversity makes them a prime choice for traditional dollars rotating into the hedge fund industry and the percentages of allocations seen in 2014 will likely continue for the remainder of 2015. Opportunistic Strategies Hedge funds can serve as a smart investment addition to an existing, diversified portfolio. Both institutional investors, led by public pension funds, as well as high-net-worth individuals, are expected to boost their allocations to alternative investments. However, as with any investment vehicle, the wise investor applies due diligence and reads the prospectus as well as seeks counsel from an investment expert. As Laurelli states, "With long-term trends in place and the future of global markets ever uncertain, hedge funds will continue to evolve into an institutional staple, with some casualties and great successes along the way." HEDGE FUND Outlook For Hedge Funds In The Current Market By: Johnny Duncan

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