Global Fund Analysis yearbook reveals shortfalls in UK distribution of products
Hedge fund investors need to be more aware of who they are investing with rather than where the fund itself is invested, if they are to achieve greater investor protection, according to Simon Hopkins, managing director of Global Fund Analysis.
In the hedge fund research rating group's year book for 2000/2001, which features reports and analysis of the hedge fund market, Hopkins analyses the changing face of hedge investments, noting that roles of the private and institutional investors.
As the hedge fund industry has grown over the past year, the market dynamics have changed somewhat, but there is still some shortfall in the distribution of product, especially in the UK market, according to Hopkins.
He said: 'Only GAM has a real presence in the distribution to private investors. The few traditional consultants who know anything about hedge strategies are hellbent on getting them accepted into the institutional mainstream ' they are welcome to the challenge.'
While smaller investment boutiques have entered the market, it remains the large investment managers, such as Lazards, Gartmore, AIG and Schroders, as the best placed to sell funds of hedge funds as traditional fund alternatives, said Hopkins.
He added: 'Investing in hedge funds is still an unregulated affair, therefore, wider institutional and private client participation will come from greater investor protection and this in turn will be determined by whom you place money and not where.'
As the industry expands private investors will start to be able to access hedge fund vehicles through the internet, according to Global Fund Analysis.
He said: 'I am sceptical of some of the latest offshore electronic trading initiatives. They do not appear to have understood the ethos of the industry and have largely only attracted start-ups and weaker funds eager to attract assets.
'To date no one has effectively established what is plainly a most attractive online model, that is, to offer independent advice and execute the trade, holding the client's money at the same time.'
Potentially, Hopkins said, the HSBC and Merrill Lynch link up online looks compelling for hedge funds, but he notes that offerings from groups such as Credit Suisse looks to be purely fee-driven.
The Global Fund Analysis year book looks at a number of newly launched and well established hedge funds, with 16 different strategies, and ranks them on a quant and qualitative basis. It provides detailed analysis and fund manager interviews on Japanese, Asian, Multi-Manager, European, Emerging, Technology, US, Global and Arbitrage & Special Situations equities.
Once funds have been selected for inclusion by the group, they are examined qualitatively under four criteria. First, the group looks at investment style, which would include confirmation, implementation, consistency and sustainability of investment style. Hopkins also looks at the stability, size, track record and the investment team credentials of the adviser group.
Risk management is also analysed in terms of back office, currency hedge, single risk exposure, leverage, position size versus average daily trading volume and investment strategy versus dependency on financing. The performance history versus investment objectives is also important to Global Fund Analysis, as is contingency planning.
Hopkins said: 'Selecting hedge funds is substantially more difficult then selecting traditional funds. The key factor that limits popular hedge fund investment is the confusing nature of the products. Categorising hedge funds is difficult and often subjective and there are many hybrid fund structures.'
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