Fund of hedge fund firm Permal Group has seen average net inflows of $350 million (Dh1.28 billion) in the first two months of the year, as the business shifts more towards institutional clients, the chief executive of the asset manager said.
"For institutions, the need for what we do as an industry and as a firm is so apparent. If you look at the last decade, apart from emerging markets, all global indices have given zero percent returns," said Isaac Souede, Chairman and Chief Executive of Permal Asset Management.
With such low returns for a long period, the search for excess returns is "more urgent than ever" with institutions, Souede said, adding that the financial crisis also resulted in corporations ending up with excess cash to deploy to alternative assets such as hedge funds.
Souede, whose firm runs $20bn in assets, said he expects to perform better than the industry for the third consecutive year and expects growth rates of about 20 per cent based on inflows and performance.
In 2009, New York-based Permal's funds returned 16 per cent to investors while in 2008 the funds were down 14 per cent, a period Souede considers was the "most challenging" for the industry ever.
He expects the industry to grow at about 15 per cent on the same basis.
The hedge fund industry was battered with heavy outflows in 2008 amid the global financial crisis but the industry rebounded strongly in 2009 as asset prices rose and investors inflows rose steadily. "Certainly sentiments have improved significantly about hedge funds. You had the test of fire in 2008, a recovery in 2009 and the industry proved its worth. Some did survive, some did not," said the industry veteran.
The manager believes that the hedge fund firms who survived the financial crisis have proven themselves but investor trust can be established only by providing consistent returns. "I think, ultimately the way you establish trust in our business is with the scoreboard and the scoreboard really is how well you performed," he said.
Souede believes that in 2010 macro hedge fund strategies, which aims to profit from changes in global economies by using leverage and derivatives, are likely to benefit but is vary of using systematic trading models which use machines to trade.
"By the time the machine figures out the trend is no longer there in this kind of market, you can take a lot of pain. We like the macro space with a skewness towards the discretionary managers," he said.
The money manager also feels that it would be difficult for hedge funds to use managed futures strategies.
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