Despite being criticised by the media, hedge funds present an attractive value proposition to Australian investors, according to Man Investments.
The asset class has had its worst year ever but still beat global stocks, making a compelling case for the inclusion of hedge funds in client portfolios, Man Investments head of institutional business Urs Alder said.
“In strong bull markets, hedge funds will never make as much as equities. The pitch is though, in strong down markets you lose much less money,” Alder said.
There is also less volatility with a diversified portfolio of hedge funds, he said.
An allocation of 10 to 15 per cent to retail client portfolios is sensible, according to Alder.
The HRFI Fund of Funds Index, which tracks 800 hedge funds, has soared 348.1 per cent since January 1, 1990 to October 31, 2008. In comparison, the MSCI World Index hedged to US dollars advanced 57.3 per cent.
In that timeframe, the MSCI’s annualised volatility was 14.3 per cent, compared to a more stable 6.1 per cent for the HRFI.
The MSCI has lost 38.7 per cent since the sub-prime crisis began last July to this October, compared to a 16.8 per cent decline in the HRFI.
The top 10 superannuation funds in Australia have $7 billion allocated to hedge funds, and that is poised to increase, Alder said.
“In 2001, the average allocation to hedge funds was 2 per cent for institutions. In 2009 it is expected to be close to 9 per cent,” Alder said.
However, due to some of the recent hedge fund blowups, it is likely super funds will look to allocate to fund-of-hedge-funds products rather than invest in individual hedge funds.
