Hedge funds fuel return of confidence

Date: Monday, June 29, 2009
Author: Perth Now

HEDGE funds could well complete their best start to the year since 1999 in a recovery that has begun to restore investors' faith in them.

Global hedge funds made an estimated 9.73 per cent in returns for the year to June 24, according to figures published by data provider Hedge Fund Research.

Individual managers, including Britain’s Henderson Global Investors, have seen funds rise by more than 60 per cent this year.

In the wake of these results, the £1.8 billion ($3.68bn) Avon Pension Fund has been advised to stick with its 10 per cent allocation to hedge funds after putting them under review, while the Clwyd Pension Fund said it would keep 5 per cent in funds of hedge funds and is looking for a single-manager hedge fund.

Other sectors also hope the strong start to the year would continue into the second half.

Asset managers anticipate continued flows of capital back into their funds, especially those focused on emerging markets.

Many investment bankers said the bottom of the cycle had been passed in M&A, and believe the "phenomenal" number of deals in the debt capital markets is set to carry on.

However, the optimism is tempered by a lack of clear signals that a sustainable recovery is under way, and there are fears the current hopes may only prelude another downturn.

The main equity market indices are below their level at the start of the year, as the rally that began in March has petered out.

Trading in bonds is expected to fall from the record highs achieved in the first half of the year.

Private equity firms report continued difficulties finding bankers to support their deals.

Hedge funds appear to be the most buoyant sector as the second half begins.

The last time they did so well was in 1999, when they made 12.5 per cent for the year to the end of June.

Henderson's European Absolute Return fund was up 61.14 per cent to the end of May while Hazel Capital's Santa Ana fund rose 56.1 per cent; and for the year to June 19, Odey European gained 33.5 per cent, Boussard & Gavaudan tacked on 16.5 per cent and Brevan Howard Macro climbed 12.2 per cent.

However, this still leaves most hedge funds well below their highwater mark, the level they must regain to recoup their investors' losses and start charging performance fees again.

Investment consultants said they doubted hedge funds would repeat their performance in the second six months of 2009, and noted that their record returns of early 1999 were followed by stock-market tumbles at the end of the technology boom in 2000.

Said Andrew Dodd, chief financial officer at hedge fund Bluecrest Capital Management: "The second quarter has seen renewed appetite for hedge funds among investors.

The industry has a long way to go in terms of a recovery, but we are cautiously optimistic on the outlook for the rest of this year and for 2010."