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Hedge Funds Way Up In Land Down Under

Date: Wednesday, November 22, 2006
Author: Dailyii.com

Australia currently accounts for just 1-3% of the global hedge fund industry, but don’t let that figure fool you: Hedge funds are rocking in the land down under. According to a report by the Reserve Bank of Australia, HF assets have more than doubled in the last two years, from A$26 billion to A$60 billion, but 75% of the 200 hedge funds that store that cash are managed by just 10 firms. Institutional investors are hopping aboard in a big way, too, with 33% of them putting money in hedge funds, up from 20% in 2004, and their portfolio allocations have tripled from 2% to 6%. Helping propel the market, the RBA states, is the intense interest in hedge funds by Aussie retirement schemes – superannuation funds, which control more than half of the country’s A$1.3 trillion in managed savings. Even high-net-worth individuals have a yen or two for HFs, as they and their fellow retail investors account for 65% of total hedge fund assets, well above the 44% global average. The RBA study notes that the attraction of hedge funds has been the opportunity for outsize returns, but in reality, the average annual HF performance over the past five years has been around 12% -- the same as the equity markets – but with less volatility. RBA notes that the heavy cash inflows have changed the course of the industry in another way: In its early days, it took "star" managers to attract investment; today, it’s the reputation of the institution that brings it in.