US - The lines between hedge fund managers and traditional asset managers are fading as more traditional managers establish a presence in the growing hedge fund market, says Mercer Investment Consulting (Mercer IC).
According to Mercer IC, the hedge fund industry continued to grow in size and prominence in 2004 with between 7000 and 8000 hedge funds representing nearly US$1trn in assets under management.
Preliminary results show that most broad hedge fund market indices underperformed the US equity market indices in 2004, although this does not mean that hedge funds failed to add value, Mercer IC said.
“As hedge funds become more and more institutional in approach and structure, Mercer clients have asked whether sufficient opportunities remain for hedge fund managers to generate alpha, a manager’s return that cannot be attributed to the market,” said Jeff Gabrione, a research consultant with Mercer IC’s US investment manager research group.
“While fund of hedge fund managers typically emphasise that they can put new money to work, it’s equally important to focus on how the managers are able to do so.”
While fund of hedge fund strategies have been the primary choice of institutional clients, Mercer says multi-strategy hedge funds offer diversification benefits and only one layer of fees. These invest in a range of different hedge fund strategies rather than focussing exclusively on one investment approach and can be expected to perform well in a variety of different market environments.
“Despite these considerable advantages, we still feel the benefits of using a fund of hedge funds manager are more compelling than using a single firm with multiple strategies,” Garbrione said. “One key point of distinction is that well-managed fund of hedge funds offer broader diversification than multi-strategy programmes.”
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