Datamonitor Reports Rise In Market Timing Activity

by Philip Morton, Investors Offshore.com

02 October 2003

In a report released this week, business information provider, Datamonitor revealed that market timing by hedge funds is becoming more prevalent in Europe, according to banks and fund management companies.

Interest in this type of investment activity has increased since New York's Attorney General, Eliot Spitzer drew attention to it during a recent high profile probe of Canary Capital Partners, a New Jersey-based hedge fund, which recently agreed to pay $40 million in fines to settle Spitzer's allegations that it made illegal trades after markets closed, acting in consort with four major mutual fund firms.

"Stanford University academics have calculated that market timing could be generating profits of around $5 billion each year for hedge funds in the US," Datamonitor reported, continuing:

"In Europe, FT Interactive Data has calculated that market timers could have generated a return of up to 50% in European-domiciled Asian funds in the two years to the end of 2002. This compares with an actual negative return of about 20% for long-term investors."

Although the report explained that the efforts of regulators throughout the world to address the practice following Spitzer's probe were "reassuring", it went on to suggest that: "the practices of market timers will continue to depress investor confidence in the fund management industry."

It concluded by observing that: "The potential impact of these activities is less severe compared to the grief caused by mismanagement of pensions, but such loopholes may still draw more investors away from the industry."

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