Diversify hedge funds in '07, says Citigroup

Date: Friday, January 5, 2007
Author: Aaron Siegel, InvestmentNews.com

Hedge fund returns will rise this year, but investors should proceed with caution, according to Citigroup Inc.'s wealth management group.

The New York-based financial services company said it expects an average return of about 10% this year, up from a predicted gain of more than 9% in 2006, according to Hedge Fund Research's main performance index.

The 10% figure still falls short of the 11.4% average return recorded over the past decade.

Strong stock markets and merger and acquisition activity will give hedge funds a boost, according to Ray Nolte, the chief executive officer of the Fund of Hedge Funds Group at Citigroup Alternative Investments.

He added that the significant capital held by private equity funds should support event-driven equity and merger-focused managers.

Citigroup advises that clients take a neutral position towards hedge funds in their portfolios the next 12 months.

"Having the right managers may add greater value to a fund of hedge funds portfolio than the actual strategy allocations," Mr. Nolte said in Citigroup's hedge fund publication.

"We recommend a basket approach to hedge funds that spreads risk across assorted managers and strategies."