Investors Showing Little Appetite For German Onshore Hedge Funds

by Phillip Morton, Investors Offshore.com

27 April 2004

The anticipated rush into the domestic German hedge fund market following the introduction of new laws earlier this year has failed to materialize, reports have indicated this week.

The German government's decision to relax hedge fund rules is part of a broader law driven by the European Union known as the Investment Modernization Act. The act harmonizes foreign and domestic tax treatment for investment funds, improves transparency for investors and eases some of the rules on companies that offer investment funds in Germany.

After single hedge fund rules were approved by the regulator in February this year, it was expected that this largely untapped market place, which has been estimated to be worth between US$12 - $16 billion, would begin to record significant growth.

However, the Frankfurter Allgemeine Zeitung reported last week that both supply and demand for domestic German hedge finds has been slow since the first fund was launched at the end of last month.

A report in the Financial Times meanwhile, also observed slow demand for onshore German hedge funds, although noting that major investment bank Goldman Sachs has witnessed a surge in demand for offshore hedge fund products, doing as much business in March 2004 as in the whole of 2003.

Some in the industry are predicting more growth later in the year with reports that some insurers and pension funds are planning to slash their equity exposure and increase allocations to hedge funds up to 30%.

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