WEST PALM BEACH, FL (www.hedgeco.net) – Hedge Fund industry analysts believe that the case for hedge fund investment remains intact despite the declining level of returns seen in recent marketactivities. Regardless of the heaviest redemptions seen in the sector during the first and second quarters, analysts say the case of investing in hedge funds is still strong for the foreseeablefuture. Such heavy redemptions were triggered by the downgrading of the automobile industry bonds which were recently given a near junk bond rating.
Analysts also believe that the fallout from the downgrading of the bond status of Ford Motors and General Motors will eventually be contained. The leading volatility generated in the global markets will also create good trading opportunities for hedge fund managers.
Klaus Martini, global chief investment officer for private wealth management at Deutsche Bank said, “The hedge fund industry has lower leverage than before. Some managers don’t know how to handle rising interest rates, but in general it is not a bleak outlook.�
Mr. Martini made his remarks at the Euromoney Private Wealth Management Conference. He explained, �If nothing really goes wrong and we only see a few blow-ups the industry should see returns of up to 4 percent to 5 percent (in 2005). For Funds of Funds we see returns at 2 percent to 4 percent plus above the risk-free (government bonds) rate.�
Richard Turnill, chief investment officer at Merrill Lynch Investment Managers Global Private Client (GPC) group added, “Most people don’t sit on the fence for hedge funds — they’re either wonder products or a disastrous bubble…. (but) between 1994 and 2004 hedge funds have produced significantly higher returns than global equities at half the risk.�
Turnill further said, �No one was very surprised that strategies such as convertible arbitrage and long/short equity recently lost money. He said, �With periods such as the one seen during the past two weeks, with widening credit spreads added to heavy selling in the equity markets, market investors were not very surprised at the losses.�
Part of the problems for hedge funds is that the predominant �carry trades� were coming to an end because of the Federal Reserve interest rate hikes. According to Turnill, many strategies used by hedge funds depend on those carry trades, but when increases in volatility is accompanied by credit spreads, new hedge fund trading opportunities will again begin to emerge.
Paul Oranika
Editor-in-Chief
HedgeCo.Net
Email: Editor@hedgeco.net
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