More than half — just less than 60% — of hedge fund investors surveyed by Deutsche Bank's prime equity services group said their due diligence on managers takes three or more months. Only 38% of respondents allocated assets to a hedge fund within the first month of starting a due diligence investigation; 20% said they take at least six months to make up their minds; and 21% said they normally give money to a startup hedge fund at inception. Of those who do make an early investment, 28% said they do so to gain capacity guarantees from the manager. Also, 51% negotiate holding periods of three or more years, compared with 60% in 2002. While 32% said they are willing to lock up their capital in hedge funds for more than one year, 71% said they would pay an exit fee for early redemption, if necessary.
Deutsche Bank surveyed 323 institutional investors during the fourth quarter.