Switzerland Is Dominating Hedge Fund Growth Outside US

by Carla Johnson, Investors Offshore, London

18 June 2002

According to a recent report from Arthur Andersen in Switzerland, Swiss banks and financial intermediaries account for $100bn-$130bn of the world's $500bn hedge fund industry, and these firms, which have been scrambling to develop hedge fund products to offer to institutional investors, are competing in an increasingly tight market-place for hedge fund managers.

As the capital of the world's private banking industry, with an estimated one third of all internationally invested private wealth under management, Switzerland also generates demand for direct investment into hedge funds, this year's destination of choice for return-conscious capital.

The powerful position of existing Swiss hedge fund operations was demonstrated last month when Rainer-Marc Frey, 39, a former Salomon bond trader, sold his RMF fund management business to the UK's Man Group for $833m. This was a high price for RMF's $8.5bn of funds under management compared for example with the $750m that Swiss Bank Corporation paid not so long ago for Gary Brinson's $35bn traditional US fund management business.

It's the scarcity of top-flight hedge fund management talent that makes such high prices possible, and is sharpening the competition between Swiss banks as they try to diversify away from their stagnant traditional markets: the profits of Switzerland's 369 banks fell 36% last year, and funds under management dropped 8.5% to SFr3,400bn ($2,180 bn).

Hedge funds currently represent a mere 2% of total global investible assets, and Mr Frey says that the hedge fund industry can grow by at least 25% per cent a year over the next decade. But such growth will do nothing to help investors find reliable funds - many of the best hedge fund managers already refuse to take on more money from new investors, who will probably be forced into the arms of the institutions as their hedge fund expertise grows. The key question is whether the entrepreneurial spirit which has driven the success of hedge funds thus far can survive current high growth rates and the increasing dominance of the institutions.

Recommended