Clients returning to Gartmore after Rambourg

Date: Tuesday, July 6, 2010
Author: Laurence Fletcher, Reuters

British fund firm Gartmore (GRTR.L) said clients were returning to its European hedge funds after big withdrawals following the March suspension of star fund manager Guillaume Rambourg.

Gartmore had revealed more than 1 billion pounds of client withdrawals in the wake of the Rambourg's suspension, but head of global alternatives Paul Graham told Reuters there had been no net outflows in the past six weeks from funds Rambourg had managed.

Graham said investors were returning to the EU-regulated Ucits fund now run solely by Rambourg's long-time colleague and Gartmore star fund manager Roger Guy, while flows were flat into the flagship AlphaGen Capella hedge fund.

"We did see outflows (from the Ucits fund) for a couple of weeks after Guillaume Rambourg's suspension ... but we are now seeing inflows," he said in an interview on Monday.

"Flows (into Capella) are flat. It is not Rambourg-related, it is just a factor of market conditions."

After an internal probe found he had breached internal rules for directing trades to brokers, Rambourg returned to work as an analyst in April. Britain's Financial Services Authority has launched its own probe.

Graham said the recent sharp fall in equity markets and spike in volatility was putting off investors in hedge funds, who had begun returning to these freewheeling portfolios after pulling out billions during the credit crisis.

"The hedge fund landscape is very, very challenging. There were terrific flows in Q1 but the industry saw a massive slowdown in Q2... The only thing to stop significant inflows is market conditions -- investors are nervous."

CAUTIOUS

Graham also said many Gartmore hedge funds have cut back their holdings and have sharply reduced their sensitivity to overall market movements after volatility spiked in early May.

"May was incredibly challenging, it almost felt like the dark days of 2008 again," he said. "Geopolitical issues and tensions are at the forefront of our managers' minds."

Tough market conditions have seen Guy's Capella hedge fund fall 1 percent so far this year, although the firm's Japan hedge fund was up 8-9 percent. The average hedge fund is down 1.3 percent so far this year, according to Hedge Fund Research's HFRX index.

Graham said Gartmore's $450 million Rhocas fund, which invests in financials, had a net long position of around 30 percent due to the large number of opportunities available.

"If you look at opportunities on the long side, given the market sell-off recently, European financials are down 21 percent year-to-date and U.S. financials are down 6-7 percent. Some European financials look significantly oversold."

However, the fund is short U.S. regional banks. "They are laden with commercial property and don't have any areas of expertise. They don't look particularly attractive," he said.

Graham also said Gartmore's managers have increased the proportions of their hedge funds that try to take advantage of short-term trading opportunities, and reduced the proportion in longer-term 'buy and hold' positions, in response to volatility.

Around 65 percent of Guy's Capella fund is in such trading positions, up from its historical weighting of 50-60 percent.

Gartmore runs 4.4 billion pounds in hedge fund assets.