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Gold/Mining/Energy : Gold Price Monitor -- Ignore unavailable to you. Want to Upgrade?

To: Enigma who wrote (36027)	6/27/1999 11:56:00 PM
From: long-gone	Read Replies (1) \| Respond to of 116752

<<I think the reality of the gold business lies in forward sales and hedging>> Perhaps only yesterday, but can you say about tomorrow? A new day is dawning.

To: Enigma who wrote (36027)	6/28/1999 4:44:00 AM
From: Alex	Read Replies (1) \| Respond to of 116752

Times for the Hedge Funds to Bloom? Counting flowers on the wall The future may belong to hedge funds. That might seem an odd view, given all the bad publicity about last year's near collapse of Long-Term Capital Management, but a couple of trends should be moving firmly in the sector's direction. First, the failure of conventional active fund managers to beat the equity indices has made many investors switch to index-tracking, which is both cheap and reliable. And if investors are going to pay fees to active managers, it seems likely that they will look for groups that offer something different from stock-picking or market timing - such as the distressed debt or arbitrage strategies followed by some hedge funds. Second, the long era of above average returns from equities and bonds must end soon. This prediction is not dependent on a crash; merely on the truism that double-digit returns cannot last forever in a world of low inflation, bond and earnings yields. And investors will seek out managers with strategies not entirely dependent on the market's upward direction. Such strategies are more likely to be found in the hedge fund universe. At the recent Geneva conference of alternative investment management, there was talk of a prediction that some $1trillion of US pension fund money was set to move into the hedge fund industry over the next three years. It seems unlikely that there will be a shortage of managers seeking to look after that money. With investment banks getting more cautious about the leeway they allow their traders, star performers are likely to find they have more freedom and greater wealth-creating opportunities at a hedge fund. Inevitably, these opportunities are accompanied by risks. Some of the more interesting sectors of the hedge fund industry, such as merger arbitrage, are too small to allow vast chunks of capital to be put profitably to use. Although there are parts of the hedge fund industry that describe themselves as "market neutral", it is questionable how many funds really fall into that category. Many US "long-short" equity funds have made money by being more long than short. According to Thomas Schneeweis, professor of finance at the University of Massachusetts, the key to hedge fund success in recent years was that the 1992-97 period saw declining credit spreads and declining volatility. Under those conditions, 90 per cent of "alternative" investment management strategies make money. That is why the late summer and autumn of 1998, when credit spreads suddenly widened and volatility increased sharply, was such a dangerous period for hedge fund managers. With the hedge fund industry growing and markets volatile, there will be more disasters, although perhaps not on the scale of LTCM. Better information is needed before more cautious European institutional investors will be persuaded to back the industry. A study by Narayan Naik, assistant professor of finance at the London Business School, found that non-directional or market neutral funds did display attractive characteristics - higher average return, lower variability and better gain-loss ratios. There was some evidence of persistence of performance, although this was more evident among the losing managers than among the winners. But more statistical analysis is needed. James Park of Paradigm Capital Management found there was clear evidence of upward bias in the performance numbers for the industry, which may be as much as 4 to 5 percentage points a year. One example is "catastrophe bias" - when funds collapse, it is often impossible to get information on their final period of trading. Another problem is self-selection bias - only funds that are successful in their first year or so last long enough to get a record that can be monitored. This kind of navel-gazing is a healthy sign. The hedge fund industry is slowly maturing, although it could take a long while for its popular image to escape from the Soros stereotype. But as investors increasingly search for alpha - superior risk-adjusted return - the hedge fund industry is the place they are likely to look. The Financial Times, June 28, 1999