WEST PALM BEACH, FL (www.hedgeco.net) – It has been reported that investors in small hedge funds are pressuring their managers to take on more risk when investing, with the hope that this strategywill drive returns higher. While riskier investments could produce bigger returns if the managers are correct with their research and analysis, the corollary is also true that when such investmentsfail the losses could also become magnified.
The pressure for riskier investments by investors is the result of frustrations from some investors who are not satisfied with the level of returns so far achieved in 2005. Most hedge funds have year-to-date returns in 2005 in the range of 3.5 percent.
A hedge fund professional who spoke on condition of anonymity said, “There is a huge set of investors out there that think that hedge funds’ return patterns will skew to the positive, regardless of volatility, and that’s just not the case.” The source also said, “The other reason is, there are a lot of investors who think that under all circumstances, higher risk equals higher return, and that’s not always the case.”
Philip Broenniman, managing partner of New York-based hedge fund said, �It�s driven by a difficult period where returns are hard to come by but there are not a lot of blowups,” adding, “If this were 2002 (when equity market returns were much worse and more volatile), no one would be asking for more leverage or a more concentrated portfolio. What we have is low volatility and a paucity of returns.”
Another manager Bradley Ziff of Mercer Oliver Wyman said “2005 is not the first time, and won’t be last time; hedge funds have an average year and hit cyclical bumps. And it’s not uncommon that when that happens, some investors begin to wonder what they can do.�
Paul Oranika
Editor-in-Chief
HedgeCo.Net
Email: Editor@hedgeco.net
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