Hedge Funds Industry Could See 10% Returns In '07

Date: Friday, January 5, 2007
Author: Hedge Fund Daily

With cautious optimism, Ray Nolte, chief investment officer for fund of hedge funds at Citigroup Alternative Investments, predicts that hedge funds will finish 2007 at around 10% after fees, up about a percentage point from a year ago. Despite the improved forecast over recent years, Nolte writes in an investment note to customers, the hoped-for percentage still lags behind the 11.4% of the past decade. Still, he waxes positive when stating, "The expected backdrop of solid equity-market performance in the period ahead as well as the continuation of shareholder friendly moves such as buyouts and acquisitions should afford stock-picking opportunities on both the long and short sides of the market." Having said that, Nolte's top choice for investment is long/short equity strategy, followed by global macro/managed futures, event driven and relative-value arbitrage. He said event-driven HFs and hedge funds that focus on mergers should benefit from "significant capital in the hands of private equity funds." Nolte is recommending that clients should shift hedge fund investments into neutral over the next year, but that they choose a variety of strategies. Meanwhile, global offshore law firm Walkers says 2007 will offer more of the same, performance wise, as 2006 for hedge funds and private equity. The Caymans-based firm says hedge funds, for the third year in a row, benefited from an infusion of cash from pension funds, especially in light of amendments to the U.S. Pension Protection Act, which made it easier for them to invest in hedge funds. Furthermore, as a result of the oft-mentioned blurring between HFs and private equity, says partner Jonathan Tonge, pension funds are increasing their allocations to hedge funds and in growing numbers to private equity funds, for the first time in many cases.