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Rapid asset ‘churn’ seen harming hedge industry

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GLOBAL – The rapid switching of assets in and out of hedge funds could blow the industry away, says industry veteran Michael Goldman, one of the founders of fund of hedge fund firm Momentum, now part of Pioneer Investments.

“People putting money in and taking it away – that’ll blow our industry away,” Goldman, head of investments for the Momentum range, told a briefing. He said the firm specialises in long-term relationships with managers.

“Almost everyone would like to have money with us because it stays there for years and years and years.”

He said his team’s due diligence efforts are now “thousands of times” more important now that institutions and investment consultants are looking at hedge funds. “Ninety-nine percent of investors have just heard of the business.”

He added that the ‘corporatisation’ of the industry in the last few years had led to much higher standards of corporate governance among hedge funds. He pointed out that Pioneer – part of Italy’s Unicredito group - is regulated by the Bank of Italy. “They look at us all the time. You end up with a much better product in the end.”

He said due diligence cost the firm “many millions” – but he was not able to provide a precise figure. “Almost all we do is due diligence.”

Goldman’s colleague, head of sales and distribution Nigel Meir, said more pension funds were looking at hedge funds. “I think where the shift will come, is with pension funds and institutions. That’s where the market is going.” He stated the institutions “don’t care” about hedge funds having low liquidity, citing pension funds’ investment in private equity. “Liquidity is not an issue.”

He added that pension funds and consultants are interested in hedge funds when they get over “misconceptions” about hedge funds’ risk, leverage and performance.

Pioneer bought Momentum for 110 million dollars in 2002.

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