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Hedge funds have new opportunities in global market: Experts

Date: Wednesday, March 5, 2008
Author: India Times.com

DUBAI: The uncertainty in global market conditions presents new challenges and opportunities to hedge funds, according to leading industry experts.

"The uncertainty which looks set to be a keynote for 2008 is throwing up a wide range of new opportunities for skill-based managers adding further to the texture to the current hedge fund landscape," Peter Clarke, chief executive of Man Group, parent company of leading hedge fund manager Man Investments, said here Tuesday.

He was speaking at the opening day of the ninth annual Hedge Funds World Middle East Conference.

Hedge funds are aggressively managed portfolios of investments that use advanced investment strategies such as leverage, long, short and derivative positions in both domestic and international markets with the goal of generating high returns.

These are usually set up as private investment partnerships that are open to a limited number of investors and require a very large initial minimum investment.

Hedge funds offer investors an alternative to traditional local market investments, giving them the ability to obtain good returns in spite of market corrections.

Investing in such funds can also be used to offset specific market risks, for example by trading strategies with a low or negative correlation to fuel prices.

According to the Monaco-based Hedge Funds Research Institute (HFRI), the industry has grown rapidly, with global hedge fund assets now estimated to exceed $1.8 trillion, almost double from $1 trillion in 2005.

Clarke said that long term macro trends - like demographic shift, climate change and peak oil production - are also expanding the opportunities.

Stating that it was hard to piece together the hedge fund "whole" from the particular dynamics affecting individual strategies, he, however, said: "The growth story for the asset class remains persuasive. On the institutional side, there is a clear trend towards increasing allocations supported by liability funding mismatches - given the current downturn in equity markets - among other motivations as well as the potential for a petrodollar and Asian central bank kicker.

"On the high net worth and ultra high net worth side, although percentage share versus institutional is diminishing, absolute flows look set to remain healthy supported by emerging market wealth and increased longevity," Clarke added.

The current environment in the Middle East and North Africa (MENA) was turning the region into a tremendous opportunity to local and international firms operating in alternative investment fields, he said.

"The changing regulatory and investment environment in the region, along with fundamentals and increasingly sophisticated MENA investors make this a time - and a region - of tremendous opportunity for both local and international firms operating in the field of alternative investments," he said.

"As an alternative asset class that can lower risk across a portfolio of investments, hedge funds are an increasingly attractive option for investors here in the Middle East - just as they are for investors across the world."

Antoine Massad, chief executive of Man Investments Middle East, said the turmoil in global financial markets in the past six months had set an intriguing backdrop for examination of hedge funds in the region.

"After more than two decades of using hedge funds, private client investors from the GCC (Gulf Cooperation Council) states have become familiar with their value as a source of additional return and downside protection in their portfolios. But the financial climate has not often presented as many opportunities as we see today."

Massad said that new initiatives by financial regulators and the dynamism of local markets have made the GCC an attractive market for hedge fund providers.

"Although all these people currently invest outside the region, this is likely to change soon as a result of strong demand for hedge funds that invest in local markets," he said.

Around 600 delegates are attending the two-day event