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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 February 7, 2006 11:49 AM