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Reuters – The days of hedge funds as a red-hot asset class may be cooling, according to a new survey released by fund research firm Morningstar on Monday.
Nearly half of all financial advisers who help wealthy people invest their money said they expect hedge funds to become somewhat less or much less important in clients’ portfolios in the next five years. Among institutional clients like pension funds, 37 percent of those polled said they expect hedge funds to become somewhat less or much less important.
Wealthy investors and pension funds helped hedge fund industry assets double to $1.7 trillion in the last three years, but recently the loosely regulated portfolios have disappointed investors with their worst-ever returns.
West Palm Beach (HedgeCo.net) – Morningstar and Barron’s today released highlights of a recent national survey examining the perception and usage of alternative investments among institutions and financial advisors.
“Our survey found that both institutions and advisors want alternative investments that are liquid, transparent, and regulated like traditional investments,” said Steve Deutsch, director of separate accounts and collective investment trusts at Morningstar. "We conducted this survey during one of the worst market downturns in history, where traditional U.S. and international investments plummeted and almost no alternative investments provided safe haven."
"One particularly interesting survey result was that against this backdrop, the majority of both advisors and institutions still reported that they expected to increase usage of alternative investments in the future, and they believed alternative investments will continue to grow in importance versus traditional investments," Deutsch added. "Recent poor performance of alternatives has not caused advisors or institutions to question their usage."
Among the survey findings are that for institutions limited partnerships, including hedge funds, direct real estate, and private equity, are the most popular alternative vehicles for institutions.
Almost half of institutions surveyed allocate more than 10 percent of their portfolios to alternative investments, and nearly 20 percent allocate more than 25 percent of their portfolios to alternatives. Institutions generally expect their portfolio allocations to alternative investments, particularly hedge funds and private equity, to increase over the next five years. Close to a quarter (23 percent) of institutions expect to invest more than 25 percent of their portfolios into alternatives.
The survey shows that advisors are predominantly investing in alternative investments through liquid, regulated, and transparent vehicles like mutual funds and exchange-traded funds (ETFs), but they’re also employing other non-traditional investments with their clients, like oil and gas limited partnerships, non-traded Real Estate Investment Trusts (REITs), church bonds, and equipment leasing.
Among advisors who work with average individual investors, almost 80 percent use alternative investments with some clients. About 40 percent of advisors had more than half of their higher-net-worth clients in some alternative investments.
Morningstar and Barron’s conducted the Internet-based survey in October 2008; 252 institutions and 1,180 financial advisors participated. The complete survey results appear in the Nov. 10 issue of Barron’s.
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Globe and Mail – Desjardins Group is winding down hedge fund-linked products, as Canada’s largest financial co-operative joins life insurers in dealing with problems in guaranteed investments that have been pounded by the downturn.
Montreal-based Desjardins is shutting down lines of what are known as "principal-protected notes," or PPNs, an extremely popular product with individual investors. The move comes as Manulife Financial and Sun Life Financial take reserves against possible losses on annuities and other funds that promise customers’ capital will always be returned.
The products that Desjardins killed bought hedge funds to offer the co-op’s 5.8 million customers the upside of markets, along with a guarantee they would get back 100 cents on the dollar. Desjardins is closing PPNs called the Perspectives Plus Guaranteed Investment and Alternative Guaranteed Investment, both of which come due over the next five years.
Bloomberg- Asia’s expanding hedge fund industry will probably create tens of thousands of jobs in the next five years, even as investment bank recruitment dries up after the U.S. subprime mortgage market collapse, said Sheridan Mather, a managing director of recruitment firm Pinnacle International Ltd.
“We’re seeing some streamlining at the moment. We’re seeing some of the not so well-performing funds closing down,” London- based Mather said in an interview with Bloomberg TV today. “But we’re seeing massive growth of the established guys.”
The world’s biggest banks and securities firms cut 83,000 jobs in the 10 months to May as U.S. subprime mortgage delinquencies seized up the global credit market, according to data compiled by Bloomberg.
