Funds Hub

Money managers under the microscope

Hedge funds for beginners

March 12, 2009

It’s encouraging to see that, even as many hedge fund investors rush for the exit, there is still some appetite to invest, as highlighted by the National Association of Pension Funds’ optimistic publication of a beginner’s guide to the industry.

rtx7phh1Entitled Hedge Funds made simple and starting with “What is a Hedge Fund”, the guide’s blurb tells us that ”the role of hedge funds, and investing in them, has become more prominent in the last year”.

The guide, costing 18 pounds for NAPF members or 35 pounds for non-members and backed by the Hedge Fund Standards Board, ”explains in clear terms how hedge funds work, why pension schemes might wish to consider investing in hedge funds, suggests how schemes could implement a hedge fund strategy and outlines the risks associated with hedge funds”.

It includes a vigorous defence of the role of short-selling, saying it is “a helpful mechanism in dampening bubbles, sometimes even preventing them from inflating in the first place”, as well as a helpful section on the often-complex isse of fees.

But, perhaps after last year’s 19 percent performance losses as markets slumped, its section on hedge fund performance strikes a rather more cautious note than the hedge fund industry may have done several years ago, highlighting the “potential” to be uncorrelated:

“Unlike traditional funds, the success of any hedge fund can potentially be independent of the direction of financial markets and its broader peer group”.

All true, but it shows how times have changed for an industry once vaunted for its ability to make money in all markets.

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