Equity And Macro Strategies Will Bring Most Joy To Hedge Fund Investors This Year

by Carla Johnson, Investors Offshore.com

03 January 2006

Hedge fund investors are expected to place more assets into funds employing strategies based on equities and macro-economic trends in 2006 as they go in search higher returns after a year in which hedge fund performance has disappointed many.

“Global macro will produce the highest returns, followed by equity hedge funds,” Luis Rodriguez, head of risk management at a New York-based Family Office investing more than $1 billion on behalf of a wealthy family was quoted by Bloomberg News as saying in a report published on Wednesday.

Equity-based hedge funds, or 'equity long-short' strategies, have performed well in recent months and returned 6.11 per cent in the third quarter of 2005. They remained the single largest piece of the overall hedge fund pie, with just under US$320 billion in assets, according to Chicago-based Hedge Fund Research and collected US$1.9 billion in new assets in the three months to the end of September.

Meanwhile, global macro funds, which seek to ride trends in stock, interest rate, commodity and foreign exchange markets, returned 3.57 per cent in the third quarter and pulled in US$944 million.

However, event-driven strategies, which bet on corporate events such as bankruptcies and management restructuring, have also proven popular with hedge fund investors. These funds gained on average 4.28 per cent and attracted US$2.5 billion in new assets in the third quarter. In the year to the end of September, event-driven funds pulled in a total of US$10.9 billion in new assets.

Meanwhile, Funds of Funds (FOFs) saw an outflow of more than US$1.2 billion in assets in the third quarter. This compared to inflows of US$3.5 billion in the second quarter and $6.2 billion in the third quarter of 2004.

A recent poll of fund of hedge funds managers conducted by Reuters revealed that they expected to make steady, if not spectacular, returns in late 2005 into early 2006, with the best opportunities seen in Japanese equities.

The survey, which canvassed the views of 12 funds of hedge funds managing about $76.5 billion in assets, revealed that fund managers envisage average returns for the industry over this period, particularly in the long/short equity sector - the most popular strategy, where respondents expected to allocate an average of 38% of their money. However, fund managers are more likely to favour long, rather than short-biased plays.

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