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Investors still back hedge funds, says Citi's global cap intro head

Date: Friday, September 9, 2011
Author: Charles Gubert, COO Connect

Investors continue to have faith in hedge funds despite the volatile markets and some high-profile poor performances, the global head of capital introductions at Citi has said.

Hedge funds have had a poor year so far with the HFRI Fund Weighted Composite Index down 1.22% year-to-date (YTD), according to Hedge Fund Research. Equity-focused hedge funds experienced a particularly harsh August falling 4.11% bringing their YTD performance to -3.42%.

“These are incredibly volatile markets but investors are still investing into hedge funds and sticking to their preferred investment strategies,” said Chris Greer, global head of Citi’s capital introduction business in New York. “Hedge funds are holding their own and are giving investors the opportunity to diversify away from correlated assets,” he added. Despite the choppy waters of late, hedge fund assets under management (AUM) are at their highest levels ever and surpassed the $2 trillion mark earlier this year.

Nevertheless, he added hedge funds needed to utilise some of the other services offered by the capital introduction team if they are to get the most out of the offering. “We don’t just provide traditional capital introductions. One of the pitfalls managers fall into is that they think that is all we offer them. However, we also offer a lot of advisory services and it is something hedge funds need to become more engaged with,” he said.

Many experts also have high hopes about the future of the alternatives space in Asia and it is something Citi has recognised. Citi has been expanding its Asia footprint and unveiled a business advisory practice in the region to provide consultancy services to Asia-focused hedge funds in December 2010.

The region has seen a spectacular growth over the last decade with hedge fund assets standing at $134 billion in June 2011 – compared with just $14 billion at the beginning of the millennium. There is also a growing investor base with Asia seeing a surge in the number of high-net worth individuals (HNWIs). A Julius Baer report recently stated HNWIs across the continent could double from 1.16 million to 2.82 million by 2015. The HNWI population in Asia has also exceeded that of Europe by 200,000, according to a similar survey conducted by Merrill Lynch Global Wealth Management and Capgemini.

Greer acknowledged Asia is an incredibly promising market although this optimism is carefully measured. “Investor interest is always cyclical. Asia happens to be one of the hotter markets at the moment and we have built our capital introductions presence out there. The important thing to remember is that you should never lose focus on any market and you should always maintain close relationships with clients globally. The key to success of both the manager and capital introduction is to evolve as the industry evolves,” he added.