Western Europe and Japan are the most sought-after regions for hedge fund investors in 2014 as economic conditions show signs of improvement for the two regions, according to Deutsche Bank's annual Alternative Investment Survey (AIS).
The AIS, taken by 413 global hedge fund allocators representing $1.8 trillion assets under management, revealed that 36 percent of investors were planning to add to Europe, while Japan was the second most popular region, up nine places from last year, with 29 percent hoping to increase their Japanese exposure.
The uptick in interest reflects the increasingly positive data from both regions. The euro zone economy grew faster than expected in the fourth quarter of 2013 amid signs of a narrowing gap between the region's strongest and weakest members.
Japan has seen an improvement in fortunes since the onset of "Abenomics" last year.Although the country's economy grew 0.3 percent in the fourth quarter of 2013 from the previous one, below analysts' expectations in a Reuters poll, it did mark the fourth straight month of expansion.
The AIS also showed that 53 percent of investors were planning on focusing on fundamental equity long/short and event-driven strategies for the year ahead, while structured credit and credit were the least popular.
Overall, hedge funds - the catch-all term for investment funds that seek an maximum return whether a market rises or falls - enjoyed a good 2013, with 60 percent of investors stating that their portfolios performed as they expected, with 20 percent saying they performed better than anticipated.
Thus, 62 percent of investors now plan to growth their hedge fund assets under management for this year, with 30 percent wanting to increase their allocations by over £100 million.
(Read more: Buffett has big lead in bet against hedge funds )
The usual fee structure for hedge fund industry is the so-called "2 and 20" rule, whereby a fund manager charges 2 percent of the assets under management and 20 percent of any profits made.
But, at a time when bonuses are once more in the spotlight, according to the AIS, "Investors remain willing to pay for performance: almost half of all investors would allocate to a manager with fees in excess of 2 and 20 where the manager has proven 'consistent strong performance in absolute returns'."
(Read more: Inside hedge fund pay: $10M for a 10 percent return )
Bank of England Governor Mark Carney this week said that a large chunk of the pay packages for senior staff at U.K. banks should be deferred "for a very long time".
The AIS did see an increase from last year in the number of investors negotiating fees, up to 71 percent, although only 35 percent of those who negotiated were successful in at least 1 out of every 2 negotiations.
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