
AIMA publishes paper on social and economic value of hedge fund industry |
Date: Wednesday, July 11, 2012
Author: Emily Perryman, HedgeWeek
The Alternative Investment Management Association has published a German-language educational paper about the social and economic value provided by the hedge fund industry.
The paper stresses the financial stability benefits that hedge funds provide
to financial markets and highlights the fact that hedge funds increasingly are
performing an important social role by managing investments for pension funds,
university endowments, charitable foundations and other socially-important
institutional investors.
It includes AIMA’s estimate that there are 50,000 people employed directly or
indirectly by the hedge fund industry in Europe – the first such statistic of
its kind produced – and 300,000 worldwide.
Additionally, the paper sets out to debunk a number of popular myths about the
industry, such as that the industry is “unregulated”, takes excessive risks and
is “secretive”.
AIMA chief executive Andrew Baker says: “When people in Germany and elsewhere
across Europe ask what social value is provided by Europe’s hedge fund industry,
they are asking a perfectly legitimate question. And our answer to that question
is really very simple. Not only is our industry responsible for 50,000 jobs in
Europe, but because institutional investors are increasingly investing in hedge
funds, our industry plays a major part in protecting the pensions of ordinary
European citizens, boosting the resources of universities and charities and
cutting the cost of insurance premiums.”
Separately, these same themes were explored in a recent study by The Centre
for Hedge Fund Research at Imperial College in London, commissioned by AIMA and
KPMG, the international audit, tax and advisory firm.
The headline finding of the Imperial study, entitled “The Value of the Hedge
Fund Industry to Investors, Markets and the Broader Economy”, was that hedge
funds outperformed the traditional asset classes between 1994 and 2011,
returning 9.07 per cent on average after fees, compared to 7.18 per cent for
global stocks, 6.25 per cent for global bonds and 7.27 per cent for global
commodities.
The authors of the study also looked at the academic literature and were able to
conclude that hedge funds deliver substantial “real economy” benefits. For
example, they cited a survey of European hedge fund and private equity managers
that found that those industries contributed EUR9bn in taxes to European Union
governments each year.
And the Imperial study also found that not only are hedge funds important
liquidity providers in the markets they are active in, they also have a role to
play in the efficient allocation of capital, portfolio diversification and
financial stability.
Elsewhere, there have been two notable recent studies that have explored
additional benefits of hedge funds.
In a paper titled “Hedge funds and Chapter 11”, Wei Jiang of Columbia Business
School, Kai Li of University of British Columbia - Sauder School of Business,
and Wei Wang of Queen's School of Business found that the involvement of hedge
funds increased the chances that a struggling company would emerge from
bankruptcy protection rather than be liquidated. The authors concluded that
hedge fund managers were more like “guardian angels” than “vultures”.
A further piece of research by Blerina Bela Reca of the University of Toledo,
Richard W. Sias of the University of Arizona and Harry J. Turtle of Washington
State University discovered that hedge funds are less prone to “herding” -
following each other into and out of the same investments, a practice that helps
to destabilise financial markets – than other market participants.
The paper, “Hedge Fund Herding and Crowded Trades: The Apologists' Evidence”,
went on to conclude that hedge funds “make markets more efficient and, as a
result, contribute to the efficient allocation of resources in the real
economy”.
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