MSN MoneyCentral – Hedge fund managers are increasingly refusing to make risky investments for fear of losing customers and their sky-high fees, according to GAM, the world’s biggest hedge fund firm.
GAM, a fund of hedge funds specialist based in Zurich, said it was hard to find managers prepared to take the levels of risk needed to produce the high returns wealthy investors demanded.
David Solo, chief executive of GAM, which manages $55bn for private clients including $23bn in hedge funds, said the change in managers’ risk appetite stemmed from their success in raising money from pension funds, endowments, insurance companies and other institutional investors.
With typical management fees of 2 per cent a year on large amounts of assets, there was more incentive to retain assets through cautious management than to seek additional performance fees from outsized returns.
Mr Solo, an industry veteran who in 1998 played a leading part in the bail-out of failed hedge fund Long-Term Capital Management, said: “The typical institutional investor goes to a long-only manager or hedge fund and says: ‘I’m thrilled you did 20 per cent last year but we are happy with10 per cent. But never have a losing year.’
