Managed Money Funds Are An Alternative To Hedge Funds

by Carla Johnson, Investors Offshore, London

13 August 2002

Many investors fleeing bombed-out equity markets have taken shelter under friendly hedges (they hope) but others have sought out boring old money market funds, which have certainly found it hard to shine while equities were booming away, but now look much more interesting. But there are different types of money market fund, and some of them are more akin to hedge funds than to 'widows and orphans' investments. Managed currency funds are at the racier end of the spectrum.

The JP Morgan Fleming managed currency fund has tripled in the past year to $100m. "Now, increasingly, investors see currency as an independent source of returns based on a manager's skill and not correlated to shares," managers Neill Nuttall and Jon Ingram told the Financial Times.

JPM's Managed Currency fund is open only to affluent and semi-professional investors, and sets out to beat prevailing interest rates by between 5 and 10 percentage points net of fees.

In fact, money market funds are close cousins to hedge funds, especially if they arbitrage between currencies and make substantial use of currency derivatives. This kind of managed currency fund is a different proposition from the money market funds run by many major fund houses, which are normally open to retail investors, but do little more than act as a sophisticated bank deposit accounts.

Other managed currency funds are less aggressive than J P Morgan's, says the FT. Investec's Managed Currency fund, for example, has target returns of 1 to 3 percentage points above cash, and Five Arrows Global Opportunity dollar-based fund targets about 4 to 5 per cent above cash.

The UK's Financial Services Authority puts most managed currency funds off limits for ordinary investors. Most of them are based offshore and investors need to qualify themselves with their advisers before the funds will accept them, as is the case with hedge funds.

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