Retail hedge funds bright future
Man Investments is preparing to submit an application to the SFC to have its hedge funds authorised for the retail market. Matt Dillon, regional manager, Asia Pacific at Man Investments, says the Hong Kong retail market is set to see significant growth.
However, he says that more variety in the funds on offer is required and believes this should happen as investors become more comfortable with alternative products. And he comments that while no final decision has been made on precise timing or type of fund Man will seek permission for, it is likely to be a multi-manager, multi-strategy fund.
Dillon says the SFC guidelines for hedge funds have protected Hong Kong investors by ensuring that only the most well established organisations are able to authorise their funds in Hong Kong. However, he believes that as investors become more informed and as public understanding of hedge funds improves, there will be greater flexibility and variety in product choice in the years to come.
"Because of the diversification they can add to a portfolio and the absolute return approach, hedge funds can be as valuable in rising stock markets as they are in falling markets," he says. "Our research shows has shown that a traditional portfolio enhanced with a 20% allocation to hedge funds saw an improvement of 51.4% in total return, with a reduction of 0.8% in volatility from January 1990 to May 2003."
Forty-one hedge funds were launched in the first six months of 2003 in the Asia Pacific region. Joanne Murphy, associate director, sales and client relationship, hedge funds at Bank of Bermuda, believes this strong growth will continue. "There has been a broadening of strategies over the last two years, and a deepening. We're seeing more fixed income, global macro, CTA and managed futures funds being set up and I expect this trend continue and to strengthen," she states
Globally flows into hedge funds have grown from $8 billion in 2000 to $50 billion in 2002. A leading consultancy firm in the US, Freeman and Co is forecasting 20% growth in hedge funds and fund of funds over the next four years. By 2007, there could equate to a $2.2 trillion industry.
Asia's share of the current $600 billion in alternative investments is still relatively small at $20 billion, but that is expected to grow likewise. Man, the world's largest alternative investment manager recorded sales of $1 billion in the region last year. In the first six months of this year Man's AHL Diversified Futures Fund has seen inflows of $96 million, all from Asia and over 80% from the Hong Kong retail market.