29 November 2007

Europeans predicted to 'shy away' from hedge funds

Growth in institutional hedge funds investments will stagnate in Europe, a panel argued yesterday during a discussion on the future of institutional hedge funds investments. Speaking at the Dow Jones Hedge Fund Indexes Industry outlook in London, Robert Statius-Muller, of research-based consultant Greenwich Associates, said he is “pessimistic” about the growth in continental Europe.

An earlier survey, conducted before the recent market turmoil, had suggested 41% of institutional investors still insisted they expected to increase their allocation to hedge funds significantly, while just 2% said they expected to decrease their investments, but Statius-Muller argued such indications are "overoptimistic".

He added the subprime-linked credit crunch might cause investors to shy away from the alternatives asset class, even though the actual amount of assets placed in hedge funds by European institutional investors is already relatively modest.

Tony Stocks of Tennyson Fund Solutions added, in reaction to what he labels “the subprime contagion”, institutional investors will put more emphasis on capital preservation.

Giles Drury, senior manager of within KPMG's alternative investment group said recent research by his firm has shown the vast majority of institutional investors expect alternative investments, among which hedge funds, only an annual average growth of between 1%-10%.

The only asset class excepted to detract from this thinking is infrastructure, said Drury and Stock.

Lastly, mentioning the example of Germany, where hedge funds are closely scrutinised, Statius-Muller said the allocation among investors to hedge funds at the end of 2006 and early this year was around 2.7%, and 2.8% over the continent.

He suggested the upcoming German private equity and hedge fund law might contribute to the slowdown in the growth of the sector.

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