Strong Demand For Alternative Investments Expected In 2005

by Carla Johnson, Investors Offshore.com

04 January 2005

Reports suggest that alternative investment products will be in demand in the New Year as markets improve and investors strive to achieve greater portfolio diversification.

According to website Financial Planing.com, analysts are anticipating that banks, brokerages and other finance institutions will add a variety of alternative investments to their product ranges in 2005, including hedge funds, real estate, exchange traded funds, private equity and funds of funds.

Garry Moody, a global managing partner in Deloitte & Touche's investment management services unit, believes hedge funds in particular will prove just as popular through next year as in the previous two.

“I think the hedge fund industry will find growth similar to how the mutual fund industry did," he said.

"It is moving from a market that institutional investors considered to be high-risk to now being seen as another method to diversify," noted Moody.

However, opinion on the prospects for the hedge fund sector in the investment community is decidedly mixed after a year of mediocre returns, and some, such as Neil Wolfson, Wilmington Trust Corp.'s chief investment officer, believe investor desire for more diversification will bring alternatives to the fore, such as private equity and real estate.

"Hedge funds are an area that should be considered, but expectation of easy money in hedge funds is not there right now," Wolfson noted.

Other observers have been more forthright in their gloomy analysis of hedge fund prospects, pointing to high fees and issues arising from an overcrowded market place where talent is being diluted and profits are drying up as more and more fund managers chase the same market inefficiencies.

Addressing a Tokyo hedge fund gathering last year, Jim Rogers, co-founder of the Quantum hedge fund with George Soros, predicted hedge funds will struggle to make return from equity markets for as much as two decades.

“I'm told there are almost 10,000 hedge funds today; with overcrowding there will be some charlatans and incompetence, and you can't have that many smart 29-year-olds around,” observed Rogers.

Recommended