Gartmore predicts hedge funds will underperform equity markets in coming years but believes investor...
Gartmore predicts hedge funds will underperform equity markets in coming years but believes investors should still buy them for the sake of diversification.
Stephen Attenborough, head of European sales for fund of hedge funds at Gartmore, said alternatives exhibit a different type of risk from equity-based vehicles.
Attenborough pointed to Harry Markowitz's Modern Portfolio theory which states it is possible to increase levels of return at the same time as reducing risks. Holding asset classes which have a low correlation to each other improves diversification and therefore decreases risk, according to Gartmore.
He stressed the importance of holding more than one type of hedge fund due to their lack of transparency and a lack of readily available information.
He said: 'The necessity for due diligence is intense as the funds are unregulated and often lack the back-office resources to be able to deal effectively with investors.'
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