Hedge funds interest but don't lure US rich -study
By Elif Kaban
LONDON, Jan 30 (Reuters) - A survey of U.S. households with liquid assets of over $1 million has found that only seven percent hold hedge funds but 60 percent are interested in the alternative asset class.
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The study released on Wednesday by financial consultants Spectrem Group found that hedge funds, loosely regulated investment pools that sell short and use borrowed money to boost returns, are shunned by most investment advisers of affluent households.
Spectrem said 72 percent of the households surveyed had a financial adviser, and nearly half relied on them for information on new products, but only five percent had been recommended an alternative investment class in the past year.
Investors' perceptions of the asset type were unclear with 46 percent describing hedge funds as ``very risky'' while 38 percent seeing them as a way to minimize risk.
The survey, conducted in December 2001, showed poor investor knowledge about alternative investments in relationship to traditional investments.
Some 68 percent of those questioned claimed good knowledge about mutual funds but only 17 percent said they had a good understanding of hedge funds. Limited partnerships, private equity investments and exchange-traded funds all ranked higher in terms of investors' understanding at 35 percent, 28 percent and 21 percent respectively.
Only 19 percent of those questioned said their knowledge of hedge funds had increased over the last year.
The hedge fund industry has been growing fast with money pouring in from mainstream investors hit by the underperformance of traditional long-only fund managers in the downturn.
Hedge funds posted positive results last year, but returns were nowhere near the out-sized results seen in past years.
For the year 2001, the CSFB Hedge Fund index rose 4.4 percent, while all broad stock market indices fell. The Standard & Poor's 500 index dropped 13 percent and the Nasdaq Composite index fell 21.1 percent.
Hedge fund managers can buy stocks if they expect the market to go up, or borrow stocks and sell them if they foresee a market drop. Funds make money on the short side if stocks indeed fall and they can repay the loans on borrowed stocks for less.
Hedge funds hold an estimated $500 billion in global assets -- a fraction of the $2.3 trillion of assets in mutual funds.
Flows of money into hedge funds during the first three quarters of 2001, at $22.3 billion, were more than in any prior whole year, based on data from more than 2,500 hedge funds. |
