Australian Hedge Funds Will Attract New Cash in 2009

Date: Tuesday, February 17, 2009
Author: Bloomberg.net

Australian hedge funds will attract a net inflow of cash in 2009 after record redemptions by overseas investors led to the closure of at least 10 funds in the fourth quarter, the local arm of the Alternative Investment Management Association said.

Funds that survived will see some of that money invested in March once December quarter redemptions are returned to investors, AIMA Australia Chairman Kim Ivey said in an interview.

“Getting through this period is the defining time for managers because new money in March and April may keep them afloat,” said Sydney-based Ivey, who is also managing director of private hedge fund Vertex Capital Management. “Those that came out of 2008 and showed that they could still add value are in a very good position in 2009.”

Australia’s hedge funds manage approximately A$65 billion ($42 billion). They dropped a record 18 percent in 2008, according to Australian Fund Monitors, which tracks the performance of more than 200 funds managed in the country, as the credit crunch forced investor withdrawals and prompted regulators to ban short-selling of shares.

About 35 percent of the offshore money invested in Australian hedge funds was redeemed in the last quarter of 2008, while local investors pulled about 15 percent of funds, AFM said.

HFA Holdings Ltd., an Australian hedge-fund manager that last year halted redemptions from some funds, said the industry has declined about 50 percent from its peak.

“Many sub-standard hedge funds and fund of hedge funds will not survive and the industry faces the prospect of greater regulation,” HFA said in a business and industry update today. HFA manages A$7.2 billion in funds, down 8.9 percent from six months ago, it added.

Pension Money

Some single-strategy funds may consider merging with other funds where the products offered are similar, Ivey said, while others may broaden the range of products offered to attract more local pension fund allocations.

“The biggest disappointment for managers is the low take- up of local pension funds into local hedge funds,” he said. “The key for Australian hedge fund managers going forward is diversification of their investors.”

Australia has the fourth-largest asset management pool in the world, with A$1,036 billion invested at the end of last year, a report from investment consultant Watson Wyatt Worldwide showed last month.

Short-Selling

Ivey said distressed debt, commodity and macroeconomic funds, which follow trends in bonds, currencies and stock markets, may attract the most cash, adding this was his personal view as a hedge fund manager and not AIMA’s.

“Dedicated” short-selling funds, which wager that prices will decline, may struggle after a successful 2008, he added. Ivey said he doesn’t expect the nation’s securities regulator to extend a ban on the short-selling of financial shares that expires March 6.

Short-sellers borrow shares and sell them, betting the price will fall and they’ll be able to buy them later, return them to the lender, and pocket the difference in price.

AIMA represents 64 fund managers in Australia and more than 1,000 worldwide.

To contact the reporter on this story: Malcolm Scott in Sydney at Mscott23@bloomberg.net