| Hedge Fund Observer: Warnings from the US while France booms |
|
|
| 04/12/2005 | |
|
You'd better be well-armed before stepping into the world of hedge funds, say 32 US-based economists from the Financial Economists Roundtable (FER). Although their declaration primarily targets individual investors, it might as well apply to institutions. "High fees, inconsistent data, and difficult to understand risks are reasons for individual investors to avoid or minimize their investments in hedge funds", voices the group, reflecting concerns frequently formulated by institutional investors. At the crux of the matter, the lack of transparency in the industry. According to the academics, there is an urgent need for investors to be able to compare the actual performance and risk of more than 8,000 funds with $1 trillion in assets under management. There is still no standard measure of performance and risk for hedge funds, which use various measures to keep their investors informed. The structure of the high fees commanded by hedge funds is also in question. The FER experts target the "high-water mark" feature, which gives the manager a performance gain over a set threshold. "One consequence often overlooked by the investor is the fact that when cumulative returns fall below the mark for generating fees, the general partner can close the fund in order to establish a new base for setting fees", points out James Van Horne, a professor of banking and finance at the Stanford Graduate Business School who helped to write the FER report. On the upside, however, a report from the Financial Stability Forum, which brings together various national authorities, said that the hedge fund sector had much to gain with the increased institutional interest in hedge funds. The institutional trend, stated the FSF, has put the spotlight on hedge funds and "expectations of greater professionalism and more disciplined management practices in the sector." In the meantime, the FER warning seems to have been largely disregarded in France, which celebrated at the end of November the first anniversary of its hedge fund regulation designed to protect investors. Since the regulation was implemented a year ago, there has been a small boom in the creation of domestic hedge fund managers. According to consulting firm Asterias, the assets under management of French hedge funds stood at €50bn in June 2005, up 10% year-on-year. Single hedge fund managers account for €20.5bn in 159 funds, while multi-managers had €29.6bn in 261 funds. However, while boutiques make up the bulk of hedge fund managers outside France, 65% of French hedge fund assets are managed by investment firms controlled by large banks such as BNP Paribas, Société Générale and Crédit Agricole. In turn, the top 5 managers control 50% of hedge fund assets. French onshore hedge fund managers also cater mostly to local institutional investors, whose offshore investments are severely restricted by law. J.L. |
|
Related articles |
|
© Copyright 2008 bfinance. This document is for your personal non-commercial use. Any further copying, reproduction, distribution is strictly prohibited. To obtain permission please contact This e-mail address is being protected from spam bots, you need JavaScript enabled to view it