Hedge funds target of unreasonable criticism says Aima

Date: Wednesday, April 9, 2008
Author: HedgeWeek

The Alternative Investment Management Association, the London-based international hedge fund industry association, says the sector is facing 'a renewed wave of unwarranted criticism at a time when many hedge fund managers are doing what they set out to do - 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 and parcel of the innovative nature of asset management (including hedge fund management), such as shorting, an accepted hedging and risk management practice, are now being singled out for unjustified criticism.

The association argues that hedge funds should be recognised for what they are: investment funds that offer investors access to a wide range of asset and investment strategies capable of offering 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 the financial industry that would not grow and flourish without them, Aima contends.

'Hedge funds are now considered part of the mainstream of the asset management industry,' says the association's chief executive, Florence Lombard. '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.'

Lombard argues that while some commentators were quick to accuse hedge funds of contributing to the credit crisis when it began last year, subsequent developments have indicated that the fundamental causes of current difficulties in global capital markets lie elsewhere.

'As a group, hedge funds around the world 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,' she says.

'Many investors [are] 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 months while global equities have fallen by more than 10 per cent.'

'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.'

Aima has more than 1,300 corporate members in 49 countries worldwide including managers of hedge funds and funds of hedge funds, prime brokers, providers of legal and accounting services and fund administrators.