The Alternative Investment Management Association (AIMA) has today published a new guide to hedge funds for institutional investors which is intended to challenge the bad press hedge funds have recently received.
Alexander Ineichen, senior investment officer at UBS Global Asset Management's alternative investment solution - and the man who wrote the guide - said it was written before the credit crunch started affecting institutional investors, and is focusing mainly at pension funds.
"It is targeted at the practitioner, but also at fiduciaries and trustees; those who might not spend the whole day thinking about financial matters. We have tried to keep it general and broad, and though I would not call it bed-time reading it is not an academic paper either," he said.
According to Ineichen, some of the misconceptions are hedge funds speculate while disrupting the market through short-selling.
"A large part of the hedge fund industry is long/short, which I believe is conservative [in strategy]," he said, adding the use of instruments such as derivatives, leverage and short-selling - which in isolation could be labelled risky or as used by speculators - is more often than not for conservative ends.
The roadmap comes as industry players have called for more rigorous self-regulation of private equity houses and hedge funds, so pension funds can work with them "with a clear conscience", according to Rudolf Hagendijk, chief executive of Dutch pension service provider Mn Services (See earlier IPE story: Eternal sunshine for the spotless hedge fund)
But Ineichin believes hedge funds have suffered more from bad press as he said: "The issues surrounding hedge funds are not black and white, but rather various degrees of grey, and it is perhaps not as grey as it is portrayed in some outlets, or in the perception of some investors."
The roadmap also discusses the difference between investing directly in hedge funds or indirectly via funds-of-funds, while fees are also discussed.
Ineichen predicts alongside the general consolidation in the financial markets, the hedge fund industry will see a reduction in the number of participants in the coming months, causing a change in the hedge fund industry.
"The stronger ones, the blue chip hedge funds will certainly survive, as the hedge fund industry is mature enough. It is not a cottage industry anymore," suggested Ineichin, though the smaller hedge funds will face some headwind and possible closures.
This is not necessarily a risk for pension funds though, according to Ineichen.
"The pension funds who invest directly invest in the larger, more stable hedge funds, while investing in fund-of-funds that are institutionally set up, are investing in the more stable hedge funds than the $20m hedge fund start-up."
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