The hedge fund industry has grown tremendously over the last decade from $625 billion in assets in 2002 to a record high of $2.7 trillion in the first quarter of 2014, fueled by institutional investors seeking ways to diversify and generate reliable returns. Institutional investors such as public and private pensions, endowments, and foundations now account for 66% of hedge fund assets. The presentation provides an overview of industry growth trends, the types of institutional investors involved, and their reasons for investing in hedge funds. It also outlines expectations for continued growth in 2014.

1. Managed Funds Association
May 2014
HEDGE FUNDS:
TRENDS AND INSIGHT FROM THE
INDUSTRY AND INVESTORS

2. Managed Funds Association
Executive Summary
• The hedge fund industry has grown tremendously in the last decade
from $625 billion in assets under management in 2002 to an industry-
record high of $2.7 trillion in the first quarter of 2014.
• This growth has been fueled by investors seeking ways to diversify
their portfolios, manage risk, and deliver reliable returns over time.
• Institutional investors, in particular, have had a profound impact on the
industry and institutional capital accounts for 66% of global hedge fund
assets.*
• This presentation gives an overview of the hedge fund industry,
providing insight on investment trends and topics.
• Data included in this presentation comes from Deutsche Bank’s
Twelfth Annual Alternative Investment Survey, the 2014 Credit Suisse
Global Survey of Hedge Fund Investor Appetite and Activity, Hedge
Fund Research Global Hedge Fund Industry Report, and the 2014
Preqin Global Hedge Fund Report, as referenced in the document.
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Contents
Industry Growth 3
Growing Popularity 4
2013 – A Year of Growth 5
Who Invests? 6
Why Invest 9
Institutional Trends 10
2014 and Beyond 15
Investment Strategies 18
*Source: 2014 Preqin Global Hedge Fund Report

3. Industry Growth
Growth of the Hedge Fund Industry:
• Hedge fund assets have more than tripled since 2002, driven primarily by increased allocations from
institutional investors such as:
– Public and corporate pensions
– University and College Endowments
– Philanthropic Foundations and Charities
• Cash that has been previously redeemed and will be recycled back into the industry is another
important source of assets.*
• Institutional investors currently represent 66% of assets invested in the global hedge fund industry.
• The industry is expected to reach an all time high of $3 trillion by the end of 2014, based on
investor’s performance and net inflow predictions.*
3
*Source: 2014 Deutsche Bank Alternative Investment Survey

4. Investors Favor Hedge Funds:
• Investors are increasingly favoring hedge fund allocations over other investment types.
4
Source: 2014 Deutsche Bank Alternative Investment Survey
Hedge Funds Growing in Popularity

5. • According to a recent survey,
nearly half of investors grew their
hedge fund assets under
management (AUM) in 2013.*
• 47% of responding investors
increased their allocations to
hedge funds in 2013, including
52% of pension funds.
• Among the institutions with the
largest increases in hedge fund
allocation were:
– Pension Funds (private and
public)
– Endowments and foundations
– Family offices
5
*Source: 2014 Deutsche Bank Alternative Investment Survey
2013 – A Year of Growth

6. Investor Statistics:
• Research firm Preqin released a study recently
mapping out the hedge fund investor universe,
key findings include:
• Endowments make up 12% of hedge fund
investors.
• Public pension funds represent more than 9% of
all investors, with a mean allocation of 7.5% to
hedge funds.
• Corporate pension funds also represent 15% of
hedge fund investors, with a mean allocation of
nearly 10%.
• Foundations represent one of many groups
increasing their hedge fund investments, with
mean allocations increasing from 15.6% in 2011
to 17.5% in 2013.
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Source: 2014 Preqin Global Hedge Fund Report
Breakdown of Hedge Fund Investor
Universe By Investor Type
Who Invests in Hedge Funds?

7. Endowments and Foundations:
College and university endowments and philanthropic foundations play a vital role in expanding educational
opportunity and enriching the quality of life in our communities. In 2014, 46% of endowments and foundations
expect to increase their allocation to hedge funds to help meet their financial needs. These investments help
provide scholarships, fund critical research, and enable economic development, health and education-related
grants in cities and towns across the U.S.
7
Who Invests in Hedge Funds?
Source: 2014 Deutsche Bank Alternative Investment Survey

8. Pension funds (Public and Private):
Hedge funds also help provide retirement security for millions of hardworking American families through
investments held by pension plans. In 2014, 60% of public and private pensions plan to strengthen their
partnership with hedge funds by increasing their portfolio allocations. A number of plans also look to
make initial investments with hedge funds to help diversify their portfolio and provide reliable returns over
time.
8
Who Invests in Hedge Funds?
Source: 2014 Deutsche Bank Alternative Investment Survey

9. Why Invest in Hedge Funds?
• Investors partner with
hedge funds to deliver:*
– Risk-adjusted returns
– Diversification
– Low correlation with other
investment types
– Low volatility
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*Source: 2014 Deutsche Bank Alternative Investment Survey

10. • According to the Deutsche Bank
survey, two-thirds of institutional
investors responding to the survey only
invest directly with single-manager
hedge funds.
• This trend underscores the increased
sophistication and due-diligence
undertaken by institutions in their
decision making process.
• Two-thirds of investors routinely take
between three to six months to
complete due diligence on an
investment manager – only a third did
so in 2002.
10
Industry Trends –
Direct Investment
Source: 2014 Deutsche Bank Alternative Investment Survey

11. Institutional Trends –
Dedicated Hedge Fund Teams
Institutional Trends: Dedicated Hedge Fund Teams
Institutional investors are strengthening their ability to perform due diligence and research potential managers
for hedge fund allocations. In recent years, institutions have grown the size of their dedicated hedge fund
allocation teams.
• Eighty-seven percent of respondents grew or maintained the size of their hedge fund due diligence
teams in 2013.
• Pension plan respondents noted significant growth in this area, with 66% of those surveyed growing their
teams in 2013.
11
Source: 2014 Deutsche Bank Alternative Investment Survey

12. Institutional Trends –
Meeting Expectations
Investors partner with hedge funds to help diversify portfolios, manage risk, and produce reliable returns.
• During the investment cycle of 2013, 7 out of 13 hedge fund investment strategies either met or
exceeded investors expectations from a year earlier.
12
Source: 2014 Deutsche Bank Alternative Investment Survey

13. Investors expect hedge funds to continue to perform well in 2014, with Credit Suisse’s survey showing that
investors believe in hedge funds’ ability to produce absolute returns.
13
Source: 2014 Credit Suisse Global Survey of Hedge Fund Investor Appetite and Activity
Institutional Trends –
Meeting Expectations

14. • Hedge fund managers often invest
their own money alongside that of
other investors, forming a partnership
with a shared interest in success.
• Communication is a critical component
of a successful investor/manager
relationship.
• Nearly 70% of investors say they did
not reject a hedge fund based on a
lack of transparency in 2013, an
increase of 21% from 2012.
14
Source: 2014 Preqin Global Hedge Fund Report
Institutional Trends –
Transparency

15. 2014 and Beyond
Confidence in Growth
Investors believe capital inflows in 2014, along with performance gains, will push the industry to an all-time
record of $3 trillion in assets under management.
15
Source: 2014 Deutsche Bank Alternative Investment Survey

16. 2014 and Beyond
Confidence in Growth
Ninety-two percent of hedge fund investors plan to increase or maintain their current allocations to hedge
funds in 2014.
16
Source: 2014 Preqin Global Hedge Fund Report

17. Steady Growth in 2014:
• Fifty-seven percent of institutional
investors plan to increase their
allocations to hedge funds in 2014.
• Deutsche Bank expects $11 billion of
new direct institutional flows into the
hedge fund industry in 2014: $8.1
billion from pension funds, $2.1 billion
from insurance companies, and $800
million from endowments/foundations.
17
Source: 2014 Deutsche Bank Alternative Investment Survey
2014 and Beyond

18. Investor Insight:
• Investors identified the following
hedge fund strategies as the most
promising for 2014:
– Equity Long/Short
– Event Driven
– Equity Market Neutral
– Global Macro
– Emerging Markets
18
Source: 2014 Deutsche Bank Alternative Investment Survey
2014 Investment Strategies

19. For more information contact:
Steve Hinkson
shinkson@managedfunds.org
202-730-2600
www.managedfunds.org
Follow us on Twitter: @MFAUpdates
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Managed Funds Association