Market Fall Makes Fund of Hedge Fund Managers More Optimistic

Date: Tuesday, March 20, 2007
Author: Hedge Fund Daily

The return of market volatility has made fund of hedge fund managers more optimistic about producing better-than-average returns over the next two quarters, according to Reuters. In its quarterly survey of the group, which represents $124 billion AUM, Reuters found that respondents now say they expect seven strategies to perform better than average, up from just four in the previous survey, with event-driven strategies getting two thumbs up. "Private equity investors are estimated to have $1.6 trillion of cash to spend in 2007, while M&A activity is expected to rise by 10% from 2006 levels," Kris de Souther of Dexia Asset Management told Reuters. Adds Robert Khoury of Union Bancaire Privee, "As long as we have accommodative monetary policy, as long as the cost of debt is still low, and we continue to see plenty of liquidity in the market, then merger and acquisition activity should continue." Multi-strategies also are seen as a winning strategy in Q2 and Q3, with macro managers also doing well, while short-biased, fixed income and credit strategies can expect "sluggish" returns. Fund of hedge fund managers’ enthusiasm has not been dampened by trouble in the market either, as Khory says portfolios at his firm were up between 50 and 100 basis points following the February market sell-off. But subprime mortgage woes could be a matter of concern. "The wild card in all this is spread widening seen in the subprime mortgage market moving to higher mortgage credit and to corporate markets," Russell Abbott of Auda Hedge told Reuters, and that he says could result in a "flight to quality and reduce overall profitability of many strategies."