European Hedge Funds Growing Fast

Caroline Maxwell, InvestorsOffshore.com

30 January 2001

According to recent research, the European hedge fund sector has been growing in leaps and bounds, with funds started last year having attracted $7.3 billion, more than double the 1999 amount. 104 new funds were introduced last year, and another 140 are expected this year, according to Eurohedge editor, Iain Jenkins.

Hedge funds have grown in popularity in recent times as a result of their ability to utilise alternative investment strategies such as hedging against market downturns, investing in asset classes such as currencies or distressed securities, and utilising return-enhancing tools such as leverage, derivatives, and arbitrage. Hedge funds have acquired a possibly undeserved reputation as 'risky' investments, due in part at least to the near collapse in 1998 of Long Term Capital Management, a highly leveraged hedge fund.

However, investors seeking capital appreciation rather than just capital preservation in the present bearish market have been becoming increasingly vocal about the need for European institutions to take the plunge. The rising number of mass affluent investors has helped to speed the process, as Oliver Grundy, financial services partner at Deloitte and Touche observed: 'The hedge fund industry started in the States because you had collections of high net worth individuals who wanted some thing a little more tailored to their needs. I think you're seeing the same in Europe.'

Judging by the strong performance of the industry last year, the time is right for hedge fund start-ups in Europe, but Jenkins did inject a note of caution into the proceedings, warning in a recent interview that more and more financial organisations jumping on the hedge fund bandwagon would mean that some funds would find it difficult to raise assets, and would fail as a result.

.

Recommended

Write a comment