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Money managers under the microscope

Permal’s picks for 2011

December 21, 2010

It’s always tricky to know what the New Year will bring for investors, but fund of hedge fund firm Permal has stuck its neck out and is backing long-short equity, merger arb and commodity funds for 2011.

The reasoning goes that, despite fears over Europe’s sovereign debt crisis and a possible double dip recession in the U.S., 2011 will in the event prove fairly benign for investors, senior executive officer Omar Kodmani told me in an interview last week at Permal’s plush St James’s offices.

Unless you’re a vol arb or black swan fund, what most hedge funds tend to dislike are choppy markets where investors indiscriminately sell or buy. Markets, it seems,¬†have now started differentiating between good and bad quality stocks and, coupled with cheap U.S. equity valuations, this is what Permal thinks will help long-short funds.

Merger arb, meanwhile, which dominated fund launches earlier this year, should benefit from higher-than-usual M&A spreads because bank prop desks are still not as active as they were.

And commodity funds should benefit from “reasonable” global growth and¬†quantitative easing, which will push up risk assets, Permal adds.

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