The major differences between hedge funds and more traditional funds are getting smaller in the EU. The boundaries have already begun to fade since the introduction of new European Union “fund passport†rules. Although still further EU rule changes will be required because current ones do not provide funds with adequate powers to short or take an especially large position in another fund or asset.
In an interview with Reuters, Mark Kary said, “I ultimately believe equity long short and long only will merge, (Hedging) is simply a risk management tool for running equity portfolios … I think the industry will change, but it will take quite a while to change.†Kary is chief executive of Polar Capital Partners, Polar runs $2.8 billion (1.5 billion pounds) of assets in both traditional and hedge funds.
Hedge fund trading involves high fees, above average risk, but higher average returns. In contrast, traditional funds tend to go long (buy and hold) or sell something they already own. Their performance tends to be more correlated to overall stock market performance, and their fees tend to be around half a percentage point.
Kary also said investors will allocate more to hedge funds in the coming years because the strong stock market performance of the past three years is unlikely to be maintained.
“I do think allocations to alternatives, specifically hedge funds, will increase,†he told a conference organised by brokerage Bridgewell Securities. “Hedge fund allocations have quietened because the equity market has risen, but I assume the equity market will have a slightly tougher time in the next two years,†he said.
Cazenove is one company that recently took to hedge fund strategy. Working with long bias in emerging markets and targeting expected developed country winners and the third will short expected developed country losers. “The concept is to look at global winners and losers combined with emerging markets to provide the sustainability of annualised returns rather than the … volatility we have seen from emerging market exposure,†said Robin Minter-Kemp, managing director of Cazenove Capital. Cazenove currently has about $850 million under management in three other hedge funds based in Europe.
Alex Akesson
Contributing Writer
HedgeCo.Net
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