February 2006
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February 27, 2006
Mutual funds adopt hedge fund tactics
Pressured by weak stock-market returns and greater competition for investors' money, a growing number of mutual funds are making use of investment strategies typically found in riskier hedge funds.
A number of major mutual-fund companies, including Allianz Global Investors, Julius Baer Holding AG's GAM subsidiary, and Alliance Capital Management's AllianceBernstein, have recently asked fund shareholders for permission to change the rules governing how they can invest to include a range of hedge-fund-like investment strategies.
Some of the new techniques being adopted include making complex derivative trades, investing with borrowed money and short selling. (Short selling involves selling borrowed shares in order to profit from an expected price decline.) Even some conservative U.S. government bond funds are adding risk with more derivative strategies.
Other fund companies, such as OppenheimerFunds and Principal Global Investors LLC, whose policies already permitted more flexible investments for some of their funds, are increasingly making use of these kinds of hedging techniques.
The hedge-fund industry, which has grown dramatically in recent years, has outperformed many conventional investments. Hedge funds, lightly regulated investment pools designed for institutions and wealthy individuals, gained nearly 8 percent annually in the five years ending Dec. 31, although performance has faltered recently, according to Hedge Fund Research Inc. The S&P 500-stock index, by comparison, gained just 0.5 percent a year in the same period, and the average diversified U.S. stock fund gained just over 2 percent annually.
Some companies are launching mutual funds specifically designed to mimic hedge funds, including offerings from Janus Capital Group Inc. and American Century Investments, and the funds' names make it clear that they are pursuing hedging strategies. But some analysts and financial advisers caution that when traditional mutual funds adopt alternative investment strategies, it could bring added risk and higher fees. Some advisers also fear that mutual funds may be rushing into a hot strategy just as hedge funds' performance is beginning to cool.
Allianz Global, for example, has asked shareholders of several of its funds to eliminate restrictions on owning illiquid securities, or securities that are thinly traded. But the company has warned that this could boost trading costs. Allianz spokesman Phil Neugebauer says the board felt the changes would benefit shareholders by giving fund managers a broader range of investment options.
Funds' proposals for loosening investment rules have generally won shareholder approval. But many investors may be unaware that their mutual fund plans to adopt new investment strategies.
The biggest changes are coming in traditional stock funds, a number of which are now shorting stocks for the first time and using complicated derivatives. These are financial contracts whose value is based on -- or derived from -- some underlying stock, currency, commodity or other investment.
Some mutual funds have long used basic derivatives, such as stock-index futures, but a growing number are now expanding into more exotic types. Oppenheimer shareholders last month approved plans to allow several of the company's funds to trade derivative contracts tied to the price of commodities or currencies. "The changes were made to eliminate outdated policies," says an Oppenheimer spokeswoman.
Allianz Global has a proposal before shareholders that would eliminate restrictions on buying stocks with borrowed money at 20 of its funds, which hold a combined $14 billion in assets. And MainStay Investments, owned by New York Life Investment Management LLC, this month proposed changes that would let its funds buy and sell real estate and expand their borrowing capability.
The new investment guidelines give the funds added tools to boost returns at a time when the industry is facing tough competition from other investment vehicles. Exchange-traded funds, which resemble mutual funds but trade like stocks throughout the day, have proven a popular low-cost alternative for investors. Higher short-term interest rates -- many savings accounts currently yield as much as 4 percent -- have made even holding cash a competitive threat to many mutual funds.
It's too early to say whether the new strategies are boosting performance.
More mutual funds are adding hedge-fund-like strategies.
Some techniques:
• Short selling, or selling borrowed shares to profit from a price decline.
• Buying securities on margin, or with borrowed money.
• Using more complex derivatives, or financial contracts whose value is based on an underlying investment.
SOME FUNDS THAT USE HEDGE STRATEGIES:
• AllianceBernstein: Proposing changes to some funds.
• Allianz Global: Proposing changes to some funds.
• Ariel Capital: New rules allow short selling and bigger stakes in individual holdings.
• Oppenheimer: Quest Opportunity Value Fund recently started shorting stocks, using alternative strategies.
SOME FUNDS THAT DON'T USE SUCH STRATEGIES:
• Brandywine.
• Dodge & Cox.
• Vanguard.
Posted by su at 2:27 PM | Comments (0)
February 21, 2006
Assets in hedge funds of funds growth continues in 2005
Assets continued to flow into the largest fund of hedge fund groups at a rate of 12% for 2005, despite widespread pessimism that asset flow trends were likely to reverse, according the latest survey of the InvestHedge Billion Dollar Club.
In fact, despite returns averaging just over 7% for the year, the global fund of funds industry still grew by more than $72 billion, it said.
In 2004, it had grown by about $166 billion. The largest funds of funds - those with over $1 billion under management - now control a combined amount of more than $631 billion in assets under management, according to the end-2005 asset flow survey carried out by InvestHedge, the publication that tracks hedge fund investors.
Niki Natarajan, editor of InvestHedge, said: "Low volatility was the most frequently blamed factor for another lacklustre year in terms of performance. The long awaited asset flow slowdown has finally taken place, but not across the board, proving that the right infrastructure, resources, range of products, distribution as well as performance, will continue to win assets".
"Many firms that do not feel that they can compete across all fields will be looking to partner up with other firms or distribution channels, a trend that started in earnest in 2005", Natarajan said.
Those 134 groups in the InvestHedge Billion Dollar Club now account for close to half of all the assets invested in hedge funds, if one assumes that about $ 1.3 trillion is invested in hedge funds globally.
The number of groups in the InvestHedge Billion Dollar Club (those running assets of over $1 billion) grew from 119 to 134 in 2005. And the InvestHedge ` Super League' - funds of fund groups with assets of more than $10 billion - grew to 17 members, representing about $287 billion of the total survey assets.
UBS Global Asset Management A&Q has not only taken the top slot as the largest fund of funds group in the world but it has also breached the $30 billion under management threshold.
GAM, which is now part of the Julius Baer Group, saw outflows of more than $ 1.4 billion and slipped to third place with slightly more than $23 billion under management, primarily because its product range has been closed for most of the year and not able to take in new inflows.
UBS, which now only includes UBS Wealth Management USA, is the second largest hedge fund player in the world with $32.6 billion in total, making the Man Group, which currently has about $39 billion in total fund of hedge fund assets the largest hedge fund group in the world.
-Dow Jones Newswires-
Posted by su at 5:18 PM | Comments (0)
February 16, 2006
U.K. pension funds increase bets on hedge funds, private equity
U.K. pension funds are putting more money into hedge-fund, private-equity and real-estate investments in hopes of making the money needed to pay retirees, who are living longer.
Watson Wyatt Worldwide Inc. awarded 61 pension contracts in 2005 for so-called alternative investments, almost double the 32 awarded in 2004, the company said today. The overall number of investment contracts awarded last year rose 23 percent to 555 from 451 in 2004, said the U.K. unit of the Arlington, Virginia- based company, which consults on employee benefits.
The increase in alternative investments reflects the need to meet rising costs for providing pensions to employees, whose life expectancies are rising. The deficit between what the pension funds of FTSE 100 companies have in assets and what they expect to pay their members is about 66.2 billion pounds ($115.2 billion), according to the company.
``People are trying to get their assets to work harder,'' Watson Wyatt spokesman Paul Deane-Williams said in a telephone interview today. That means they are looking to spread risk away from stock investments, as well as looking for assets that will increase more in value, he said.
The expected lifespan for an Englishman born in 1950 was 66.4 years, a figure that rose to 75.1 years for those born in 1997, according to the U.K.'s Office for National Statistics. Investing in a wider range of assets may help the funds meet their increased obligations.
'Hedge Fund Index Rises 48 Percent.'
Hedge funds aim to beat returns from stock markets by betting on rising as well as falling securities. Over the five years ending in November, the CSFB Tremont Hedge Fund Index advanced 48 percent, compared with a 2.4 percent return for the MSCI World Index during the same period.
Watson Wyatt increased the amount of bond contracts it awarded on behalf of pension funds to 52 last year from 22 in 2004, the company said.
Pension funds are increasing looking to bonds such as emerging market debt that pay higher returns. They're also putting more into money into derivatives, Watson Wyatt said.
-Bloomberg-
Posted by su at 10:06 AM | Comments (0)
January jump for CSFB/Tremont hedge index
Solid December performance led to great January numbers for the Credit Suisse/Tremont Hedge Fund Index, which posted a 3.23% increase for the month in what was the highest monthly return since August 2000, according to President Oliver Schupp.
All but one of the ten sub-strategies included in the index rang in the first month of 2006 with gains. Emerging markets managers were the month's best performers, up 5.76%, nearly doubling their 2.44% December increase. Growing global appetite for risk also helped long/short managers produce a 4.18% return in January, following 2.78% in December, in what were as the second-highest results for January.
Global macro strategies, through long equity exposure and short positions in European and Japanese bonds, returned 3.37%; the event-driven category grew by 2.92%, with distressed, event-driven multi-strategy and risk arbitrage returning 2.52%, 3.32% and 1.63%, respectively.
"Event-driven hedge fund managers had one of their strongest months in recent history, taking advantage of a tightened credit spread throughout the month and an increase in announced mergers and acquisitions after the start of the new year," said Tremont Capital Management Inc. Chief Executive Robert I. Schulman, speaking in a statement.
But no less impressive was the growth registered by convertible arbitrage managers, much maligned in 2005. The category posted a 2.75% increase in January, nearly three times the 0.96% earned in December and the strongest performance in three years, noted Mr. Schupp: "The managers profited from higher valuations and increased inefficiencies after a year of numerous fund closures in 2005."
Managed futures increased 2.71% in January in what was the biggest improvement over December results, when that category was down 2.53%. More increases were found in multi-strategy, up 2.76%; fixed income arbitrage, 1.42%; and equity market neutral, 1.4%.
Dedicated short bias, the only strategy to lose money in January, was down 2.98%, continuing to dive after a December decrease of 1.96%.
The Credit Suisse/Tremont Investable Hedge Fund Index, meanwhile, returned 1.85% in a month of largely mixed results. In December the index was up 0.58%.
The success enjoyed by the Credit Suisse/Tremont Index was shared elsewhere. While the Dow Jones Industrial Index was up 1.5% in January, the MSCI EAFE US $ Index increased 6.15%; the MSCI $ World Index, 4.48%. The Nasdaq Composite US $ Index grew 4.56%. All the benchmarks were up significantly from their December performances.
Still, a month of solid returns are welcome news for hedge fund investors, after 2005 proved to be a year of mixed results that prompted the possibility of redemptions and outflows
-HedgeWorld.com-
Posted by su at 10:00 AM | Comments (0)
February 13, 2006
Pension plans turn to hedge funds
If you had a chance to look under the hood of your pension fund, you just might find a hedge fund or two inside.
Public pension funds, like other investors, have been struggling to boost returns amid sluggish stock and bond markets. Many have turned to hedge-fund managers and their often-unorthodox ways to get a bigger bang for the buck.
Hedge funds have been on a roll anyway. The snooty, unregulated and byzantine investment partnerships now count more than $1 trillion in assets and outnumber mutual funds, by some estimates.
Their ability to ride unconventional tactics to modest gains during the stock-market slump of 2002 generated fans among rich individuals, endowments and other upscale investors.
Many pension funds, which invest on behalf of various employee groups, are showing interest.
"Once they start marching down a road, pension funds don't get deterred easily," said Edwin Burton, a trustee of the Virginia Retirement System, at a recent hedge-fund conference in Scottsdale. "And they won't get deterred in this case."
Pension funds in Virginia, Texas, New Mexico and other states use hedge funds to manage a portion (usually small) of their assets. Arizona's largest public fund, the Arizona State Retirement System, uses hedge tactics in moderation.
"If you don't think you can make your 8 percent a year, you look anywhere you can to add value," said Paul Matson, ASRS director, citing a common investment target of pension managers.
Hedge funds mean different things to different people. Some associate them with scandals such as those involving Long-Term Capital Management, Bayou Management and Canary Capital. Others see nimble vehicles run by astute Wall Street pros.
"What sets hedge funds apart is that the tool kit available to managers is extremely large and varied," wrote Bernstein Investment Research & Management in a report.
The tools include short selling of stocks, options and futures contracts, dabbling in currencies and other non-traditional assets, and potentially high use of leverage, with the power to magnify gains or losses.
Although hedge funds have a reputation for being risky, many are highly conservative, seeking to eke out modest gains regardless of whether stocks are rising or falling. A key reason hedge funds are growing popular with pension funds is their ability to diversify away risk.
"Hedge funds allow us to get an acceptable return at low risk levels," said Bob Boldt, CEO and chief investment officer of University of Texas Investment Management Co., speaking in Scottsdale. "We then can take (greater) risks elsewhere in the portfolio."
Certain public Texas funds have roughly one-quarter of their portfolios in hedge funds, representing $5 billion in investments, he said.
Hedge funds also have proven popular with other institutions: Yale University's endowment recently held about one-quarter of its assets in hedge funds.
The partnerships really shine at times when Wall Street is in full retreat. Hedge funds whose results are tracked by the Hennessee Hedge Fund Index lost 2.9 percent on average in 2002, when the Standard & Poor's 500 index slumped 22.1 percent. By contrast, the S&P 500 beat the Hennessee index by about 10 percentage points in 2003, while the past two years have been a wash.
"When you hit bear markets, you want to be able to earn positive returns," said James Marten, a Merrill Lynch financial adviser in Phoenix who counsels foundations and endowment funds on hedge funds.
Over the 19 years from 1987 through 2005, the Hennessee index returned an average 13.7 percent yearly compared with 11.6 percent annually for the S&P 500 - and did it with less volatility or risk.
A Bernstein study spanning 10 years showed hedge funds performing in line with the S&P 500, with less risk.
So why don't all pension funds clamor for hedge funds? High fees are one reason. Hedge-fund managers typically charge 2 percent yearly and take 20 percent of all profits over whatever benchmark or target the manager selects.
"That's significantly more than anything we currently pay," Matson said.
ASRS doesn't use hedge funds but utilizes certain hedgelike tactics for a small portion of the portfolio, relying on traditional money managers inside separate accounts.
Hedge funds haven't been popular for all that long - one or two decades, depending on whom you talk to. Matson cites this as a problem. "There's no good historical database on how things have done," he said.
Also, when you factor in trading costs and tax considerations, hedge-fund results come up short compared with traditional market measures, according to the Bernstein report. Pension funds don't have to worry about taxes, but this is a factor for wealthy individuals. (Individuals generally can qualify with a net worth of at least $1 million or income exceeding $200,000.)
Hedge funds also come with other blemishes. For example, information about their investment holdings is tough to obtain, and investors often must agree to lock up their money for six months to two years, Marten said.
Even fraud appears to be a bigger danger with hedge funds compared with pension or mutual funds, as the Bayou Management scandal involving a fictitious Pinal County gold mine showed.
"There is a place for them so long as everyone understands the risks," Marten said.
-The Arizona Republic-
Posted by su at 10:20 AM | Comments (0)
Dr. Andrew Lo: darwinian investing
-The MIT finance professor's market theory borrows from neuroscience, evolution, and econometrics-
Can brain science unlock the secrets of success on Wall Street? And if so, will it transform the field of personal finance? These matters fascinate Andrew W. Lo, a finance professor at Massachusetts Institute of Technology's Sloan School of Management and director of its Laboratory for Financial Engineering.
Lo, 45, and a small band of economists are tapping into neuroscience and cognitive psychology to better understand how investors make financial decisions. In one early experiment, he and a colleague wired up 10 traders in Boston and monitored their breathing, body temperature, perspiration, pulse rates, and muscle activity as they risked real money in the markets. While the most seasoned traders in the group remained relatively calm, nearly everyone had sweaty palms and quickened pulses when the markets grew more volatile. "Even the best traders have significant emotional responses when they trade," says Lo.
This fights the stereotype of traders as rational, coolly analytical Vulcans of commerce. Lo's results, along with further studies using more sophisticated magnetic-resonance imaging on traders, also undercut a dominant theory known as the efficient market hypothesis (EMH), which holds that markets aggregate information efficiently and investors form their financial expectations rationally. The reality may be much messier.
Lo, who also serves as chief scientific officer at the hedge fund Alphasimplex, breaks with both EMH and behavioral economics in seeing emotions as central to survival in the market. But this is just one element in a theory Lo is developing called the Adaptive Market Hypothesis. It shows how investors use trial and error to establish rules of thumb when placing financial bets and then hone their skills amid disruptive changes. Think of the market as an ecosystem made up of hedge funds, mutual funds, retail investors, and other "species," all competing for profit opportunities. It's a Darwinian world where market shifts render some strategies obsolete, resulting in chances missed and money lost, says Lo. "The only way to maintain an edge is to continually innovate."
Lo is not the first to incorporate the insights of Charles Darwin in his models. Luminaries from Joseph Schumpeter to Gary Becker explored this territory in the past. But Lo's mingling of neuroscience, evolution, and financial econometrics is highly original. He predicts that the insights of evolutionary psychology will change individual wealth- and risk-management techniques, right down to how people handle 401(k) portfolios or deal with declining home prices.
Prepped with appropriate data from Lo's research, a simple computer program might one day provide invaluable financial advice. You would punch in basic information, such as family status, life goals, the standard of living you would find acceptable in retirement, and the types of risks you can or can't tolerate. An algorithm would then tailor a portfolio for you and help you hedge against unwanted risks, such as a lost job or a wage cut. "Now, it sounds like science fiction," says Lo. "Not in 10 years."
Sci-fi was an important influence on Lo, whose family moved from Taiwan to Queens, N.Y., when he was 5. Raised by his mother, he became an academic star. He skipped eighth grade, sped through Bronx High School of Science and Yale University, and nabbed a PhD in economics from Harvard University at age 24. But it was Isaac Asimov's Foundation trilogy that steered him toward finance economics. Asimov sketched out a branch of mathematics called psychohistory, whose practitioners sample the proclivities of large numbers of people, then accurately predict the future based on what they learn. Sound familiar?
-Businessweek.com-
Posted by su at 10:12 AM | Comments (0)
84% of wealthy US families to invest in hedge funds
About 45% of wealthy families invest in funds of hedge funds, and 84% expect to do so the next three years, says a report from Prince & Associates. Now big institutions are dipping their toes into hedge fund waters. About 60% of U.S. foundations and endowments are invested in hedge funds, along with about 20% of pension funds.
Pensions by far have the most dollars to invest, but their hedge fund allocation represents only 1% of their $5 trillion in assets. They tend to invest in funds of hedge funds to spread the risk. The nearly $200 billion California Public Employees Retirement System, one of the nation's biggest investors, recently voted to double its hedge fund allocation to $2 billion. Imagine what would happen to hedge fund asset growth, the report postulates, if pension funds increased their exposure to, say, 10%.
-Investors.com-
Posted by su at 10:05 AM | Comments (0)
February 9, 2006
Exchange-traded hedge funds sprouting
In 2006, funds of hedge funds trading on exchanges will receive more allocations from pension plans and get included in the FTSE indexes, a new report predicts.
Mark James of ABN Amro Bank argues that the funds were until recently too small for institutions that want to make large allocations. Taking a big share of a fund's total assets typically violates pension investment rules and also can run counter to restrictions imposed by an exchange.
But now several funds of funds listed in London and Zurich each have assets of more than half a billion dollars. For instance, Dexion Absolute Ltd. sterling class assets are at US$608 million, and its sterling C share assets are an additional US$113 million.
"Given the benefits of the structure, and the familiarity of exchange-traded funds to trustees in particular, we expect more pension funds to start allocating in 2006," Mr. James wrote.
In the meantime, new products are in the works. Dexion Capital, the operator of three listed funds, is launching a new vehicle, Dexion Alpha Strategies Ltd., to be managed by RMF, part of Man Group plc. ABN Amro, an active player in this market, is the sponsor.
This fund is to allocate tactically to managers with the goal of taking advantage of asset classes that offer high profits at the time, such as energy in recent years. Funds of hedge funds in general have suffered from lackluster returns as moneymaking opportunities in long-established hedge fund strategies like convertible arbitrage were depleted.
A closed-end fund that trades on an exchange possesses a key advantage. The manager has a stable pool of money and can take advantage of potentially high-profit but illiquid investment opportunities without having to worry about redemptions.
At the same time, trading provides daily liquidity to investors at a known price. But the share price can diverge from net asset value. Some shares, like those of the existing Dexion funds, have traded at slight premiums on the London Exchange, but those on the Zurich exchange are typically at a discount.
Another new development is the listing of a single-strategy hedge fund on London's AIM market for small firms. RAB Special Situations Company Ltd. shares were floated on AIM in May 2005. Because this closed-end fund invests all its assets in the RAB special situations master fund (established in January 2003), it was not eligible for listing on the London Stock Exchange.
Mr. James of ABN Amro sees more single hedge funds following suit, as well as additional fund of hedge funds launches on the LSE.
He expects some of the larger exchange-traded hedge fund vehicles to be included in the FTSE indexes later in 2006, thereby attracting index trackers. That would add to the liquidity of this sector.
Total assets in hedge fund products trading on the London, Zurich and Toronto stock exchanges are at about US$5.6 billion, up from US$5 billion six months ago.
-HedgeWorld.com-
Posted by su at 5:37 PM | Comments (0)
HFR returns show good January
As if to answer their 2005 critics, hedge fund managers posted big gains across the board in January. The HFRI Fund Weighted Composite Index tracked by Hedge Fund Research Inc. rose 3.65%, beating the Standard & Poor's 500 stock index's January return of 2.65%.
Strong equity performance no doubt buoyed hedge funds. The HFRI Equity Hedge Index was up 4.12% in January, while the Equity Non-Hedge Index rose 5.37%. The HFRI Market Neutral Index was up 1.54%.
Convertible arbitrage managers got off to a good start last month, posting a 2.59% gain. Short sellers lost 1.66% and were the only strategy tracked by HFR to post a negative return in January. Funds of funds in the index gained 2.64%.
Emerging markets hedge fund managers had a great month, as a group returning 6%. Managers specializing in Eastern Europe and the former Soviet states turned in the best performance, earning 7.98% in January. Latin American managers earned 5.71%. Global emerging markets managers earned 5.43% and Asia managers earned 5.33%, according to HFR data.
Relative value arbitrage managers turned in a 1.87% gain, while merger arbitrage managers earned 1.8% in January. Macro managers earned 1.38%. Fixed-income arbitrage returned 0.21%.
In 2005, the HFRI composite index earned 9.35%, and 2.13% in the fourth quarter.
-HedgeWorld.com-
Posted by su at 5:26 PM | Comments (0)
Slow go for hedge funds in Hong Kong
Hedge funds are heading to Hong Kong to set up offices to service investors in Asia, but ironically, the HF headquarter of the Far East is having a tough time attracting big clients.
According to South China Morning Post, institutional investors are just not lining up for hedge funds, largely because of a lack of understanding about them and regulations that have barred the HK$145 billion (US$18.7 billion) Mandatory Provident Schemes Authority from investing in them.
“The demand is just not there because nobody is really pushing for it,” Giselle Lee, Man Investments’ Hong Kong head, told the Post.
She noted that while, in mature markets like the U.S. and Europe, about half the business comes from endowments, pension plans and the like and half from retail investors. In Asia “it would be 90% to 95% retail.”
-Institutional Investors-
Posted by su at 4:55 PM | Comments (0)
February 8, 2006
Ex-Harvard manager beats launch record
The former manager of the Harvard University endowment is discovering the Meyer the merrier, as Jack Meyer’s spanking new Convexity Capital is set to break the record for largest launch, reportedly $6 billion. That figure, according to the Financial Times, would top Erich Mindich’s Eton Park Capital Management and William von Mueffling’s Cantillon Capital Management, which both held the previous record with their $3 billion launches in 2004. Some credit Meyer’s fund-raising success to his stellar reputation, that he may be “arguably the best hedge fund manager of the past 15 years,” while the FT credits his unique approach of using a fixed-income strategy coupled with alpha through exposure to an index that an investor chooses – a strategy he used at Harvard that helped propel assets from $4.7 billion to $22.6 billion during his 15-year tenure, which ended last year. Lower-than-standard management fees of 1.25% can’t hurt either.
-Hedge Fund Daily-
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February 7, 2006
Hedge fund assets seen rising despite weak returns
Weak returns stemmed the flow of money into hedge funds late last year, but panellists at a conference said growth of assets in the industry will pick up as institutions continue to diversify their portfolios.
Data from Chicago-based Hedge Fund Research showed investors pulled $824 million (470 million pounds) from the funds in the last three months of 2005, the first quarterly fall in more than a decade.
However, the industry's assets have doubled to more than $1 trillion since the technology bubble burst in 2000 and prompted interest in hedge funds as a way of diversifying away from traditional assets such as equities.
Estimates of hedge fund assets by the end of this decade typically fall between $2 trillion and $5 trillion.
"There is a sea-change in the attitudes of trustees of pension funds," said Dan Shapiro, a partner at law firm Schulte, Roth & Zabel, at a hedge fund event on Thursday organised by UK-based fund manager The Fortune Group.
"Trustees are under pressure ... to invest with managers who will protect their assets and have a chance of making money ... We see enormous growth in that area (hedge fund assets)."
Hedge funds are seen better able to protect their assets because they can use derivatives and short sell -- bet on an asset price falling -- to limit losses.
Between 2000 and 2002, hedge funds on average returned more than 3 percent, while the MSCI index of world stocks lost more than 10 percent. But since then, hedge funds on average have failed to beat the MSCI index.
Last year hedge funds returned around 7.5 percent, below the more than 10 percent investors would have earned on the MSCI.
"Investors do not tolerate poor performance ... But the shift will continue," said Gary Linford, head of the investments and securities division at the Cayman Island Monetary Authority.
-Reuters-
Posted by su at 11:49 AM | Comments (0)