EU-based hedge fund-style products pull in $200 billion

Date: Wednesday, May 12, 2010
Author: Reuters

Investors have poured almost $200 billion into "hedge fund lite" and alternative funds based in Europe, data showed on Tuesday, as clients scarred by the credit crisis seek transparent ways to access hedge fund returns.

Deals

Figures from research group Strategic Insight show the assets invested in so-called Ucits funds, which came from investors in areas such as Asia, Latin America and the United States as well as Europe, went into more than 1,000 of these alternative and absolute return funds.

The market has grown sharply since the EU's cross-border Ucits rules allowed retail investors to access products which use many of the techniques -- such as short-selling -- which had been the preserve of hedge funds and complex mainstream products sold to institutional investors.

Some fund industry players have voiced fears that the rapid increase in the popularity of the funds could push the industry into a new mis-selling crisis.

"The search for better performance and diversification is encouraging innovation in the fund industry, and leading to alternative products that were unimaginable in a retail context just a decade ago," said Jag Alexeyev, head of global research at Strategic Insight.

Hedge fund firms such as Man Group (EMG.L), GLG Partners (GLG.N) and Brevan Howard have launched Ucits versions of their portfolios, while many traditional asset management firms have also hoped to capitalize on investor demand by launching alternative or absolute return Ucits funds.

Investors have grown more attracted to Ucits funds after many hedge funds limited clients' access to their money during the credit crisis when many investors were asking for it back.

Ucits funds tend to have stricter transparency and liquidity requirements than funds domiciled in locations such as the Cayman Islands, where most of the world's hedge funds are based.

Hedge funds suffered their worst performance on record in 2008 as markets slumped during the credit crisis, although their 19.02 percent losses were less than the S&P 500's 36.99 percent fall, according to Hedge Fund Research.

Last year they gained 20.12 percent, behind the U.S. index's 26.47 percent rebound.