Hedge fund industry the target of unreasonable criticism

Date: Tuesday, April 8, 2008
Author: AIMA

AIMA: Hedge fund industry the target of unreasonable criticism, market turbulence offers both challenges and opportunity for managers.

The Alternative investment Management Association (“AIMA”) – the global hedge fund industry association – notes that the hedge fund industry is facing a renewed wave of unwarranted criticism at a time when many hedge fund managers are doing what they set out to do – to deliver absolute returns for their investors during extreme market volatility and falling asset prices.

AIMA believes that the very practices recognised in the past as being part of the innovative nature of asset management (including hedge fund management) – such as ‘shorting’, which is an accepted hedging and risk management practice - are now being singled out for unwarranted criticism in a number of quarters.

AIMA is calling for hedge funds to be recognised for what they are: investment funds that offer investors access to a wide range of asset and investment strategies, which can offer downside protection in difficult market conditions. They continue to play a productive and liquidity-providing role across a range of markets, and are often the pioneers in new areas of finance which would not grow and flourish without them.

Florence Lombard, Chief Executive of The Alternative Investment Management Association, said:
“Hedge funds are now considered part of the mainstream of the asset management industry. They are widely recognised as productive investment vehicles by investors, including pension funds, and have an important role to play in the current market. They protect the value of portfolios with skills specific to them.

Disappointingly, hedge funds are often made the focus of media attention when any suspicions of market irregularities arise. It is vital that the legitimate shorting of assets should not be confused with alleged market abuse by, as yet, unidentified players in the market.

Although some commentators were quick to accuse hedge funds of being contributors to the credit crisis when it began last year, subsequent developments have indicated that the causes of current difficulties in global capital markets lie at a fundamental level elsewhere.

Hedge funds around the world as a group continue to attract new investment, and independent projections from a number of sources, including Hedge Fund Research[ and PricewaterhouseCoopers, indicate that asset flows into hedge funds remain strong, with many investors intending to raise their allocations into hedge funds and other alternative investments in 2008 to provide capital protection in falling markets.

Indeed, hedge funds, if viewed as a single asset class, have preserved capital over the past 12 months3 whilst global equities have fallen by more than 10%.

Florence Lombard concluded: “In all areas of finance, there is sometimes a need for regulators to act against isolated instances of irresponsible behaviour. This is to be welcomed. However, around the world we are seeing hedge funds erroneously being represented in the media as being the focal point for any such investigation. We encourage more balanced reporting going forward.”

For further information, please visit AIMA’s website