hey tough guy
here ya go
Reuters Business Report
Rich Taking Shelter in Hedge Funds
By Elif Kaban
LONDON (Reuters) - The wealthy are getting out of the ailing U.S. dollar in a move that may put further pressure on the
currency, and buying more hedge funds to cushion themselves against tumbling share prices, bankers say.
The dollar tumbled to a two-year low against the euro on Friday, while share markets globally have been hit
by worries about profitability, corporate chicanery and international security.
"We've been having to do much more hand-holding recently. It's time to rethink strategic asset allocations," said Daniel de
Fernando, head of wealth management for European, Middle Eastern and African clients at JP Morgan Private Bank.
Bankers said allocations to hedge funds were nudging higher than the usual 15-20 percent levels to as high as 30 percent as a
result of the poor performance of many portfolios.
Some bankers said they were advising offshore investors to diversify out of the dollar, under pressure from capital flows out of
the United States as well as an uncertain economic outlook.
The dollar is down nine percent against the single currency year to date, adding to the wealth destruction caused by falling share
prices and the woes of banks whose revenues have been hit hard in the downturn.
"Offshore assets held in U.S. dollars are declining right now," said Michael Marks, chairman of U.S. bank Merrill Lynch &
Co's (NYSE:MER - News) international private client group and Merrill Lynch Investment Managers.
Many wealthy offshore investors, in particular those from the Middle East and Latin America, are invested in the dollar.
"The most significant tactical (asset allocation) move in recent weeks has been the diversification out of the dollar. That's going
to be the most significant theme from a currency perspective in the coming months," said de Fernando.
"We have been, for the last few weeks, talking to clients about the possibility of dollar weakness. We're telling clients that if
they are dollar-based, they should diversify out of U.S. dollar assets more than has been the case in the past."
DIVERSIFY, DIVERSIFY
Bankers say diversification is the watchword amid the gloom.
"Our view is that the stock markets could take a lot longer to recover than people think," said Mike Samuels, at Kleinwort
Benson private bank in London, a unit of German Dresdner Bank.
"We don't see why 2003 won't be another poor year. The macro economic signs are not good. We advise clients to diversify."
Diversification appears to have paid off for some.
A study released this week by Merrill Lynch and consultants Cap Gemini said the rich managed to keep their fortunes intact in
2001 by getting out of shares and into bonds, hedge funds and property, growing their assets by three percent to $26 trillion.
Michel Nassif, head of the hedge fund advisory business at J.P. Morgan Private Bank in Geneva, said hedge fund allocations at
many banks had nudged up to the 30 percent mark from 15 percent or lower because of the continuing market doldrums.
"Many clients say, 'why not go higher?'," Nassif told Reuters. "Given weak returns on traditional investments, there is a lot of
demand for hedge funds."
Explosive growth in hedge funds in recent years has lifted total assets invested in these lightly-regulated investment vehicles,
which can sell stocks short and use borrowed money to boost returns, to more than $600 billion.
Nassif said wealthy client assets managed by J.P. Morgan's hedge fund advisory business were up 50 percent year to date.
So far this year, however, for hedge fund investors it has been more a matter of preserving capital than seeing it appreciate.
Year-to-date returns of 2.2 percent compare with falls of 7.1 percent in the broader Standard & Poor's 500 Index, 17 percent
in the tech-heavy NASDAQ and 0.96 percent in the blue-chip Dow Jones Industrial, according to the CSFB Tremont hedge
index. |
