Business Standard – Hedge funds and foreign currency convertible bonds (FCCBs) are replacing real estate as popular offshore investment destinations for India’s richest.

Hedge funds are investment funds which employ various strategies to produce absolute returns. These strategies could be long- short, event driven, arbitrage or of various other types. A long-short strategy involves buying stocks which are assumed to perform high and selling stocks which are assumed to perform low.

As hedge funds are considered to be a high risk asset class, they are recommended to only a few “ultra high net worth and sophisticated” clients only. "Currently we are recommending 10-15 per cent allocation in strategies such as long -short and arbitrage to well-informed HNIs", said the head of a private bank. The returns range from 12-15 per cent annually in dollar terms.

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Business Standard – Spooked by increasing performance losses and record investor redemptions, the global hedge fund industry saw net outflows worth $158.91 billion in the fourth quarter of calendar year 2008, the highest level since 1994.

According to a report by fund tracking firm Lipper, global hedge fund assets are estimated to have decreased from $1.5 trillion in September to $1.29 trillion at the end of December 2008.

All hedge fund sub-strategies posted negative money flows (outflows) in the three-month period with cumulative net outflows in 2008 as the industry witnessed a collapse in global equity markets, liquidity issues and failure of a number of key institutions.

In absolute terms, the performance of Credit Suisse/Tremont hedge fund index in Q4 2008 registered -10.21 per cent, the second worst quarterly performance since the start of the index. The index had posted 10.33 per cent negative returns during the third quarter. "A majority of hedge fund managers were hit by panic selling and deleveraging that followed, combined with changes in broker requirements and the enforcement of a ban on short selling in certain financial stocks," said the Lipper report.

In US dollar terms, the largest hedge fund sub-strategy outflows were experienced by long/short equity at $42.52 billion.

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Tags: absolute terms, collapse, credit-suisse, dollar terms, financial stocks, fourth-quarter, fund-assets, global equity markets, global hedge fund, hedge-fund-index, hedge-fund-managers, lipper, liquidity, long short equity, performance losses, q4, quarterly performance, redemptions, tremont-hedge-fund-index, trillion