A Fast And Furious Week In The Hedge Fund Sector

by Carla Johnson, Investors Offshore, London

12 November 2001

The rush of investors into hedge funds continues apace as interest rate falls dent fixed-income returns and equity markets remain soggy at best. But do investors have anywhere near an accurate understanding of the risks of their hedge fund holdings? This last week saw plenty of action in the hedge fund sector, with Man Group reporting record inflows to its hedge fund products, Gartmore opening and immediately closing two new hedge funds, and hedge fund consultant Tremont Advisers announcing a new product to measure hedge fund portfolio risk.

Early in the week, Gartmore announced that its AlphaGen Avior Fund had simultaneously launched and closed with $150 million, while the firm's AlphaGen Cepheus Fund also took in more capital on the same date - reopening and immediately closing to take in an additional $50m, taking its total invested to $115million. Martin Phipps, Head of Hedge Funds, commented, "Two years on from the launch of our first hedge fund, AlphaGen Capella, assets in Gartmore hedge funds now exceed $2 billion. We expect to launch more funds next year."

Then on Thursday, Harvey McGrath, Man Group's current chairman and former CEO, said that fund performance and sales trends were both strongly upwards. "The full year looks very good," he said. Pretax profits for the first half of the year ending Sept. 30 doubled to £97 million ($142 million) from the same period a year ago.

Chief Executive Stanley Fink said that the growth of assets under management topped internal targets. Funds under management rose 33% during the six-month period to $8.9 billion. Assets totaled $9.6 billion at the end of October amid the launch of a new fund that raised $500 million from largely wealthy clients in Europe and Asia Pacific, a record for Man. The fund was sold over the difficult Sept. 11 period. Man's brokerage business, Man Financial, also delivered as pretax profits rose 27% to £18.7 million. Man Group's AHL Diversified fund, a futures-based trend follower, returned 7.8% in the six months to Sept. 30, the company said, against a 9.7% decline in the S&P 500 stocks and an 11.7% decline in the FTSE 100.

Harvey McGrath said investors are looking for alternatives to the stock markets of the world: "There is clearly a structural shift that's taking place in terms of the way people who invest money seek to find yield and seek diversification away from the stock market. The key characteristic of our approach is a low coordination with equities, but that doesn't mean we won't perform when the equity market performs."

Finally, at the end of the week, Tremont Advisers announced that it is teaming up with financial analytics group RiskMetrics Group to create a new product that will meet the rising demand for risk measurement among hedge funds.

In about three months, the two groups said they plan to launch an online service for hedge fund managers and investors that will measure risk by reviewing all positions an investor may have.

"Current hedge fund risk reporting is inconsistent and non-transparent, making it difficult to assess risk in the aggregate at the fund of funds and firm level," said Cynthia Nicoll, director of business development at Tremont. "Market participants have historically focused on position- level transparency, while the real issue is risk information and risk aggregation," she added.

Tremont tracks more than 2,800 hedge funds worldwide and oversees more than $8 billion in hedge fund investments. It was recently acquired by Oppenheimer Funds.

Recommended