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Wealth managers 'put 25% in hedge funds'

Date: Monday, June 25, 2007
Author: Steve Lodge, Financial Times

Some of the UK's biggest private banks and wealth managers are putting as much as a quarter of their typical investment portfolio into hedge funds, according to FT research.

But other high-profile "alternative" investments such as private equity and commodities have not been adopted to anything like the same degree.

While many wealthy investors' portfolios now have combined weightings of about 30 per cent to alternatives, the research shows that just a few per centis in private equity orcommodities.

Of the wealth managers surveyed, GAM currently has the highest allocation to hedge funds with nearly 27 per cent of its average balanced portfolio, followed by London & Capital Asset Management at 26 per cent. Among the other highest weightings are Kleinwort Benson Private Bank at20 per cent and UBS Wealth Management at between10 per cent and 25 per cent.

"I'm not surprised [at the weightings], but most investors still view hedge funds as risky and wouldn't allocate anything like as much as this themselves," said Phillip Wood, director of personal financial planning at PwC. While many hedge funds were delivering consistent returns with lower volatility than equities, investors were "really trusting their wealth managers" by having such substantial holdings.

Richard Bethell of investment research firm ComPeer said high net worth investors "looking for a bit of excitement" could also be partly driving the shift into hedge funds. Mr Wood said portfolio allocations to private equity and commodities appeared more in tune with investors' perceptions of their high risks. With private equity, high investment requirements could be excluding it from manyportfolios.

The research found wide variations in performance by wealth managers and private banks. The highest balanced portfolio returns over three years were at Rensburg Sheppards, where investors gained an annual average of 15.9 per cent after charges.