| Hedge funds evolve to follow investors' tastes |
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| 17/04/2005 | |
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The hedge fund collect has peaked out, but inflows will not stop thanks to the growing institutional exposure to alternative assets, according to Morgan Stanley. Based on the analysis of data provided by Tremont, Morgan Stanley says that the net inflow growth has halved from 20% in the first half of 2004 to 10% in the second part of the year. According to the hedge fund managers interviewed by Morgan Stanley, the growth rate of new money should be fairly stable between 10 and 15% in 2005. Most of the new inflows will come from pension funds, that have largely brushed aside the risk and cost issues they used to associate with hedge funds as they take increasingly bold step to fill the gap left by the last stock market crisis. Only in the UK, 75 pension funds have made allocations to hedge funds. All but six of them took the fund of hedge funds avenue, seen as less risky. The development of institutional inflows, which now account for more than private inflows, has led hedge funds to adapt their strategies to institutional needs. For instance, Trafalgar Capital Management has launched a leveraged pan-European market neutral fund that offers a gold share class, allowing investors to get an exposure to gold through a forward contract. Industry entrants New "hybrid" hedge fund managers are also springing up throughout Europe as traditional fund managers seek to answer the investors' call for more alpha and to stop the exodus of talented managers to hedge fund boutiques. According to a survey by Investit, a consultancy, those mixed firms now makes up around 15% of the European hedge fund market. The consultancy found that mixed firms, that have strong reporting teams, could get around the transparency issue presented as a major problem by institutional investors. Also, Investit reports that mixed firms are seen as being more likely to have the capacity to support a wide range of hedge fund strategies successfully at the same time, reducing the firm's reliance on one "star" manager "What we found suggests that a future two-tier hedge fund world will emerge. A world where the 'original' hedge product continues to flourish without constraints while a new product enters – a hybrid child of hedge funds and long-only management using hedge fund techniques while providing the security which pension funds require", said Catherine Doherty, Principal at Investit and coordinator of the Investit Intelligence service. J.L. |
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