Question Mark Hangs Over Viability Of Small Hedge Funds

by Phillip Morton, Ivestors Offshore.com

27 June 2005

The hundreds of small hedge funds which have sprung up in the midst of the recent boom in popularity amongst wealthy individuals and institutional investors for alternative investments have yet to prove their viability, according to one industry expert.

Speaking at last week's Reuters Hedge Fund Summit, Charles Beazley, head of institutional and alternative investments at Gartmore Investment Management - one of the world's largest hedge funds - stated that the majority of hedge funds (about 77%) have assets of less than $100 million.

Whilst on the surface this may not seem particularly worrying to investors, Mr Beazley went on to assert that generally speaking, hedge funds must have at least $75 million in assets on average to break even, and according to Beazley, around 72% of hedge funds have an asset base below this level.

"There are a lot of hedge funds out there that are not proven in the sense of being viable," he noted stressing that commercial and investment success are two very distinct propositions.

Although nobody knows for sure, most estimates put the number of hedge funds in existence at the moment at the 8,000 mark which are managing assets totalling between $1 trillion and $1.2 trillion.

Mr Beazley's comments echo those of hedge fund industry experts in Asia, who are observing an increasing trend among investors for favouring established hedge funds which are tried and trusted against smaller, less well-known entities.

"The industry is growing, and people are starting to gravitate toward larger, more established funds that have track records," noted Francis Tjia, managing director of Income Partners Asset Management in Hong Kong at a recent conference in the city.

Data compiled by Bloomberg shows that of the 391 funds based in Asia, only 39 had assets of $200 million or more. The largest of the funds that have reported the amount of assets they manage is the Mauritius-based ADM Gelleus Fund, which manages a little under $750 million.

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