Big Hedge Funds May Be Risky, Asia Is Attractive, Parker Says

Date: Friday, May 30, 2008
Author: Catherine Yang and Bei Hu, Bloomberg.com

Big hedge funds may be risky as a result of investments in illiquid assets, said Virginia Parker, chief executive officer of Parker Global Strategies LLC.

``Many people often think the larger hedge funds are much safer,'' Parker said today in an interview on Bloomberg television. ``But it really depends on what those very large hedge funds are investing in, the liquidity of their portfolio, and what type of match there is with the redemptions they allow and the underlying liquidity of their positions.''

Parker, whose Stamford, Connecticut-based company farms out $600 million to hedge funds, challenged widely held views that have led to more money being invested in large managers even as overall inflow into the industry slows.

Managers who oversee at least $5 billion each accounted for 5.5 percent of the number of hedge fund firms worldwide, yet controlled nearly 60 percent of industry assets by the end of March, according to Chicago-based Hedge Fund Research Inc.

Hedge funds attracted $16.5 billion of new money in the first quarter, the least since the end of 2005, as a credit drought, falling home prices, a U.S. economic slowdown and poor fund performances hurt investor enthusiasm, it said.

Parker Global, which already puts about a third of its assets in Asian funds, may increase investments in the region and start a new fund of hedge funds at the end of this year.

``We think that Asia looks very attractive,'' Parker said. ``As we consider the next three to five years, there are many growth opportunities, a lot going on in the various countries, very good opportunities to diversify. We're doing this really because of investor demand for an Asia-focused fund of funds.''

Eurekahedge's Asian hedge fund index dropped 5.9 percent this year through April, the worst first four months in its eight-year history. The Singapore-based company's global hedge fund index dropped 1.1 percent in the period.

A Deutsche Bank AG survey of investors who held nearly $1 trillion of hedge funds assets in March identified Asia outside Japan as the second-most popular place to add investments this year, after the Middle East and North Africa.

To contact the reporter on this story: Bei Hu in Hong Kong at bhu5@bloomberg.net; Catherine Yang in Hong Kong at cyyang@bloomberg.net