LONDON, Feb 4 (Reuters) - Investors, fearful of choppier

markets in 2025, are again favouring alternative trades and

moving away from hedge fund strategies that profit when broader

markets rise or fall, a Barclays ( JJCTF ) investor survey showed on

Tuesday.

They want hedge funds to shrink the proportion of their

strategy that profits from so-called 'beta', or the movement of

broader markets, to between 15% and 5%, with some as low as

zero, the Barclays ( JJCTF ) survey of 325 hedge fund investors overseeing

almost $9 trillion showed.

Heady stock valuations and an AI-related frenzy saw the

hedge fund industry lose billions on Jan. 29 during a tech stock

rout sparked by the emergence of DeepSeek, a low-cost Chinese

artificial intelligence model.

While hedge fund crowding into tech stocks had dropped from

its 2023 peak, concentration in these trades before the rout was

still high compared to pre-pandemic levels.

Hedge funds' beta as a broader industry is just over 20%,

said Roark Stahler, head of strategic consulting Americas at

Barclays ( JJCTF ).

Uncertainty surrounding the new U.S. administration's

policies means hedge fund investors are looking for less

exposure to broader stock markets and towards strategies that

take advantage of volatility, said Jon Caplis, CEO of hedge fund

research firm PivotalPath.

"Equities and their valuations have risen substantially and

potentially unsustainably since 2020 (S&P 500 annualizing 14.5%

since 2020)," he added.

Hedge fund strategies such as long and short stock pickers,

credit and those linked to activism have fallen out of favour

with investors, the Barclays ( JJCTF ) report said.

Instead, investors this year prefer hedge funds that use

algorithms to trade the difference in the relative values of

stocks and assets affected by mergers and acquisition deals,

said the bank's report.

Multimanager funds which trade many ideas under one roof

topped investors' wish-lists for hedge fund allocation, it said.

Multimanagers returned to investors 56% of investment share

in 2024 compared to less than half the year before, Barclays ( JJCTF )

data showed.

These hedge funds require investors to pay their running

expenses and also take a cut of performance returns.

The biggest hedge funds have grown almost 50% in size in the

last 10 years, said the data.

In 2014, the average top-20 hedge fund oversaw around $34

billion in assets, whereas today it manages around $50 billion.

Smaller and mid-sized hedge funds only grew by roughly a

billion in assets during the same timeframe.