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To: TFF who wrote (9841)	3/22/2002 6:00:24 PM
From: TFF	Respond to of 12617

Hedge Fund Industry Is Thriving As Institutions Seek To Achieve Better Returns This year is set to be another year of hedge fund launches. Last year, over 1,000 hedge funds were launched and investment managers polled recently say they are planning many, many more this year. The appetite among usually risk averse investors for hedge fund products is also growing explosively. A survey by Deutsche Banc Alex Brown that was published last Thursday shows 98 percent of institutional investors have committed funds to hedge funds that provide them with absolute return investment processes. Another 57 percent is in the process of channelling assets from traditional investment classes to hedge funds. The asset class popularity is gaining momentum at a time that hedge fund performance is usually better than the average returns that can be made in the market. Whereas it has proved difficult for investors to make decent gains, the story has been different with hedge funds. Only recently did hedge funds make their first loss in months, according to the sector’s leading index, the CFSB/Tremont Hedge Fund Index, which showed the funds had lost 0.6 percent on average in February. The index includes the performance of 381 funds with a variety of nine strategies. The Deutsche Banc study, which compiled the strategies of 168 institutions, shows that the risk appetite among the investors is rather big. Eighty-one per cent of all institutions surveyed invest directly in hedge funds, and did not step in via a fund-of-funds structure. And only 21 percent said they used a consultant to advise them on hedge fund investing. An even larger proportion of the interviewed funds said they would abandon their usual rule that a fund manager should have a track record of at least three years before they hire him. That’s most likely inspired by the fact that it’s the fashion among high profile fund managers with years of experience to quit a big firm to set up shop for themselves. Deutsche Bank’s Abraham Gulkowitz, chief global strategist for corporate finance at Deutsche Bank Alex Brown, has become the latest in a string of famous bankers to announce his departure of the confines of a large institution to set up a hedge fund boutique. The Deutsche Bank survey’s findings have raised eyebrows in the institutional investor world. It might appear strange that the otherwise deliberate and careful institutional industry is making such unorthodox noises. But the trend is undeniably there – even an earlier survey, held by William M Mercer in the US points at the same development. According to Mercer, a debate is ongoing between institutions and their outside investment advisors on the issue of where best to put their monies. Outside investment specialists favor the traditional asset classes, large and small cap equities over the alternative asset classes including hedge funds and private equity investments. But plan sponsors are interested in the alternative asset classes as a method to boost investment returns in a market that they perceive will offer limited opportunities, says Barry McInerney, who heads Mercer's US investment consulting practice. Institutions have become tired and weary of their less than optimal performance over the last two years, it appears. The USD550 billion hedge fund industry has outperformed the rest of the market over the same period, although the returns have been modest compared to the sky rocketing percentiles that hedge funds achieved in the 1990s. In Europe , the surge in interest for hedge funds coincides with a wider trend to step up investments in specialist mandates. This has been most pronounced in UK pension funds investment strategies. According to figures by William M. Mercer’s European Pension Fund Guide 2001, UK institutional investors had increased their allocations to specialist managers by 31 percent. The trend is nowhere near as intensive on the European continent, where only 3 percent of all invested mandates by outside investment houses were awarded to specialist managers. Yet, the belief is that demand in Continental Europe too is increasing for hedge products. One survey by Morningstar’s European operations found that of all fund launches that investment managers plan over the next twelve months, the bulk will be invest in alternative assets. Only around 15 percent of the new to be launched funds will be traditional funds, according to Morningstar’s February opinion poll among the top European mutual fund groups. Source: RiskCenter.com