Hedge Funds – alternative funds or mainstream investments?
Ever since their inception in 1949, hedge funds have been seen as a niche investment alternative, and one largely available to only the wealthiest investors.
Saturday, September 1st 2001, 6:07AM
Mark Pickering, manager of personal funds management for AXA New Zealand says that hedge funds should no longer be seen in this light, but should form a core element of any long term investment strategy.
"The key advantage of a hedge fund is that, typically, there is a low correlation with equities and bonds, meaning returns can still be positive during market lows. In fact, the key aim of a hedge fund is to provide positive returns, regardless of market conditions."
That's why hedge funds are increasingly becoming known as "absolute return" funds. In direct contrast, traditional managed funds aim to outperform a benchmark index. So, even if the traditional fund makes a negative return, it's considered successful if that return is better than the benchmark return.
Highlighting this difference, the average return for hedge funds in the year ended May 2001 was almost 8%, while the Standard & Poors 500 index recorded a 10% decrease. Many traditional funds fared worse than the index.
It wasn't until the early 1990's that hedge funds started to gain popularity amongst more mainstream investors. In fact, over the last three years the sector has doubled in value to US$400 billion as institutional investors enter the market, in turn giving smaller investors access to this type of investment via managed funds.
Growing demand within New Zealand has led to the recent launch of several hedge funds, and AXA New Zealand will soon launch its own version to the market.
Barry Seeman, managing director and co-head of AXA Global Structured Products Inc, will be visiting New Zealand in September to present the case for hedge funds, and to outline AXA's upcoming fund (expected to be available by December) to several key financial planning groups.
While there is genuine concern that hedge fund managers are unable to consistently provide positive returns, there are methods available to reduce this risk including diversifying hedge investments across more than one manager.
AXA Global Structured Products Inc ("AXA GSP") employs a comprehensive selection process to identify suitable hedge managers, using quantitative and qualitative analysis.
The due diligence process includes an extensive list of risk standards, which must be satisfied before a manager is even recommended to the Investment Committee. AXA GSP has gone so far as to protect their process for identifying and assessing hedge fund managers as intellectual property.
Based in New York, AXA GSP focus on the development and management of new investment products in alternative asset classes, and Barry Seeman has more than 14 years product development experience in this field.
By December, the launch of AXA's new hedge
fund will provide access to world class management with sound
diversification and a proven investment track record - once again
providing New Zealand investors access to superior investment
opportunities.
This article has been supplied by AXA New Zealand.
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