WEST PALM BEACH, FL (HEDGECO.NET) – For quite some time fund managers have gauged their performance on beating indexes, analysts argue that another downturn in the stock market in the coming year maychange the way such managers measure their performance. Alex Ineichen, head of alternative investment strategies at UBS Investment Research said, “It needed a serious bear market for rethinking tokick in, if we have another bear market next year that will be the final push to get rid of this benchmarking idea.”
This prediction was based on the continuous movement of investors towards other kinds of alternative investments such as hedge funds, real estate, commodities, and private equity. According to published reports, the development of benchmarking funds grew out of the slump in the British stocks in 1970, and spikes in crude oil prices, such developments also led to the end of the gold standard.
Benchmarking funds have allowed traditional fund managers to still get relative returns even when these managers achieve negative returns. For instance if a bench mark is down by 15%, and the value of the traditional manager�s portfolio is down by 7%, the manager of such portfolio still gets a bonus.
Michael Brian, head of prime brokerage at Barclays Capital said “For a very long time, equity markets allowed investors to achieve excellent growth, the fact that over the last few years this has no longer been the case has led to a shift of funds to other asset classes including alternative investments such as hedge funds.”
Some analysts are predicting a negative earnings growth for 2005, which could lead to another bear market. This development may extend the current era of flat returns and lead to further crisis in the pension funds industry. An industry where many of the funds are still struggling to recover from the recent market declines which created larger deficits for the industry.
This crisis has led to many pension funds adopting hedge fund investment strategies in an effort to cover their anticipated future retirement liabilities. In a reaction to the growth of alternative investments, many traditional investment managers are also developing their own hedge fund management platforms. Gavin Scott, head of business development services at Morley Fund Management said, “Those three years, 2000-2002, were a defining time in terms of a change towards relative returns.� He added, �Institutions shifted their emphasis from relative to absolute when they saw equities at the bottom of league tables for three consecutive years and hedge funds at the top.”
Paul Oranika
Editor-in-Chief
HedgeCo.Net
Email: Editor@hedgeco.net
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