Hedge Fund Frenzy Spreading To Europe

by Caroline Maxwell, Tax-news.com, London

06 June 2001

In the first quarter of 2001, almost as much money poured into hedge funds as in the whole of the previous year, according to a recent survey conducted by Tass Research. The figures show that $6.9 billion net new money was invested in the sector globally between January and March of this year, which will do nothing to reassure those who fear that the industry is expanding too rapidly for its own good.

Once seen as an alternative and risky asset class suitable only for the seriously rich, hedge funds are rapidly becoming mainstream, and seem to be blazing a trail into Europe, where hardly a day goes by without a new fund or fund of funds launching. Although much hedge fund investment is still done by rich individuals, there is increasing interest from institutional investors and the wider market, with providers such as Deutsche Bank, Credit Suisse First Boston, and Henderson busy lining up hedge funds to cater for the retail end of the spectrum.

One reason for the sudden surge of interest may be that investors became disenchanted with 'long only' asset management strategies when the markets began to fall, and decided that hedge funds were the more nimble alternative. However, the plethora of new funds has meant that far from closing to new investment when the target capacity has been reached, many hedge funds are having to offer guaranteed top-up allocations to draw in new investors, and are arguably becoming less nimble by the day.

Experts fear that the major difficulty for investors with enough money may not just be gaining access to a fund any more. Finding a fund run by the right individual has become a great deal more problematic of recent times. The complexities involved in running a hedge fund mean that there are a shortage of talented managers at the moment, and those in the know are concerned that in their eagerness to jump on the bandwagon, investors may be throwing their money at dud funds. According to a recent survey conducted by Goldman Sachs' European Hedge Fund Symposium, up to 66% of investors may be investing money into unproven hedge funds when, according to the executive director of Goldman Sachs International, Roger Denby-Jones, experienced hedge fund investors usually demand at least a two year track record before putting money into a new fund.

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