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The Deutsche Bank Alternative Investment Survey (DBAIS) provides the opinions, forecasts, and summaries of activities of hundreds of participants in the market for alternative investments. Although relatively short, the data set is sufficient to provide descriptive measures of interesting trends during the period and of interesting relationships among planned additions to various hedge fund strategies. Like other surveys, the material covered by the DBAIS has evolved over time, with new questions reflecting the ongoing changes in the hedge fund industry. Since we are interested in documenting the evolution of investor characteristics and expectations, we focus on the subject matter and corresponding questions that have been stable over the life of the survey.
We analyze data from the seven surveys where at least four time-series observations are available. The topics of analysis are dollar allocations to alternative investments, size of funds, use of managed accounts, lock-up preference, liquidity preference, and allocations to six investment styles. We offer time-series analysis that can provide insights into how hedge fund investors make choices among the various investment styles.
Among the more interesting observations we make in our study are 1) the strong increase in the use of managed accounts and 2) the steady increase in the early years, as well as the recent decline, in the size of intended allocations. Based upon data on the proportion of investors who intended each year to add to their allocations of the different investment styles, it appears that the conditions that make investors reduce allocations to distressed debt also make them reduce allocations to convertible arbitrage. We also observe that the percentage of respondents who intended to add to allocations of the two fixed-income classes (distressed debt and convertible arbitrage) was generally negatively correlated with the corresponding percentage of the other four classes: long- short strategy, global macro, multi-strategy, and statistical arbitrage. Lastly, hedge fund investors tend to chase strategy returns with their intended allocations and, as such, tend to do a bad job in timing future strategy returns.
Exhibit 1 provides information concerning the sample used each year in the DBAIS. We include information on how the DBAIS reported the number and how DBAIS described the participants. Exhibit 2 reports how the respondents characterized themselves by type of institution. There...