Hedge fund redemptions will slow in 2009 and be aided greatly by $50 billion in inflows to end the year with around $1.3 trillion in total assets in the U.S., Barclays Capital said in a report issued Tuesday based on interviews with 300 investors and 100 hedge funds.

Investors are ready to aggressively allocate cash that they have held on the sidelines, Barclays said, but they will demand liquidity. The investors have about 14% of their portfolios in cash, and 80% of them plan to put that cash to work back in the markets.

“In producing the ‘Picking Up the Pieces’ report, we found that in spite of dramatic changes in the investor landscape,” said Brian Reilly, managing director at Barclays, “certain investors were ready to deploy their cash balances aggressively once markets stabilized.”

However, investors said they would avoid highly leveraged and high beta strategies in favor of opportunities in dislocated markets, such as distressed credit. Investors also said they would seek transparency and more favorable incentive fees.

Subscribe Now

Access to premium content including in-depth coverage of mutual funds, hedge funds, 401(K)s, 529 plans, and more.

3-Week Free Trial

Insight and analysis into the management, marketing, operations and technology of the asset management industry.