Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 


Hedge Fund Sector Reaching Early Maturity

7 October 2005

Hedge Fund Sector Reaching Early Maturity

- Hedge funds transforming the investment landscape
- Shortages of prime capacity developing

As a way of achieving out-performance, the recent unprecedented surge in the demand for hedge funds will ease as the industry commoditises, according to a study published by KPMG International.

The study presents the views of 550 top executives in 35 countries, including New Zealand, involved in hedge funds, their administration, prime broking, mainstream fund management and pension funds; with combined assets worth US$ 23 trillion.

It shows that the worldwide growth in hedge funds has been fuelled by the prolonged bear market and the inflow of top talent capable of generating high returns. Their impact has been petering out at the time when the number of start-ups has increased considerably.

The KPMG report finds that the quality of the resulting capacity is highly variable. Most of it is, as yet, incapable of generating the high double digit returns that investors are led to expect. At the front end, the biggest risk is poor returns; at the administration end, it is mis-pricing of complex products.

In presenting the results to various New Zealand mainstream fund managers, Bill Wilkinson, partner financial services said “the results for New Zealand were very similar to those in the global survey”.

The study predicts that the next wave of new money into hedge funds will come from pension funds that have so far adopted a wait and see attitude. Those in the USA are likely to have bigger allocations than their peers in Europe and Asia Pacific because of their superior in-house expertise and oversight controls. Worldwide, allocations will be small: less than 3 percent of total investments on average. But the sheer weight of new money should commoditise hedge funds and drive down high charges and fees.

Indeed, the study found that hedge fund managers and mainstream fund managers are already diversifying into one another’s product areas, using similar investment strategies and boutique structures that overtly separate high and low return products. Hedge funds are, thus, no longer the only means of achieving high absolute returns in today’s low volatility environment.

“Gaining huge prominence in the bear market, hedge funds will outlast it; as will their top managers. As a catalyst, they have started a chain reaction that extends across the global fund management industry. They have forced mainstream fund managers to go back to their time honoured mission to provide absolute returns.” said Mr Wilkinson.

The study predicts that the hedge funds industry will consolidate over the next three years because of a wide margin of under-utilised capacity, at the manufacturing, distribution and administration end.

For hedge fund managers, consolidation is likely to occur mainly via high attrition since they run lifestyle businesses which are hard to value. For fund managers, in contrast, it should occur via mergers and acquisitions; and for administrators via acquisitions by global banks diversifying into prime broking and back office services.

The study concludes that the contours of the fund management industry will change by 2010. If hedge funds are to retain their current uniqueness in it, their managers will constantly have to invent new ways of generating high returns. Those who do not, may either pale into the emerging mosaic or become victims of the creative destruction which they sparked off in the first place.

ENDS

© Scoop Media

 
 
 
 
 
Business Headlines | Sci-Tech Headlines

 

I Sing The Highway Electric: Charge Net NZ To Connect New Zealand

BMW is turning Middle Earth electric after today announcing a substantial contribution to the charging network Charge Net NZ. This landmark partnership will enable Kiwis to drive their electric vehicles (EVs) right across New Zealand through the installation of a fast charging highway stretching from Kaitaia to Invercargill. More>>

ALSO:

Watch This Space: Mahia Rocket Lab Launch Site Officially Opened

Economic Development Minster Steven Joyce today opened New Zealand’s first orbital launch site, Rocket Lab Launch Complex 1, on the Mahia Peninsula on the North Island’s east coast. More>>

Earlier:

Marketing Rocks!
Ig Nobel Award Winners Assess The Personality Of Rocks

A Massey University marketing lecturer has received the 2016 Ig Nobel Prize for economics for a research project that asked university students to describe the “brand personalities” of three rocks. More>>

ALSO:

Nurofen Promotion: Reckitt Benckiser To Plead Guilty To Misleading Ads

Reckitt Benckiser (New Zealand) intends to plead guilty to charges of misleading consumers over the way it promoted a range of Nurofen products, the Commerce Commission says. More>>

ALSO:

Half A Billion Accounts, Including Xtra: Yahoo Confirms Huge Data Breach

The account information may have included names, email addresses, telephone numbers, dates of birth, hashed passwords (the vast majority with bcrypt) and, in some cases, encrypted or unencrypted security questions and answers. More>>

ALSO:

Rural Branches: Westpac To Close 19 Branches, ANZ Looks At 7

Westpac confirms it will close nineteen branches across the country; ANZ closes its Ngaruawahia branch and is consulting on plans to close six more branches; The bank workers union says many of its members are nervous about their futures and asking ... More>>

Interest Rates: RBNZ's Wheeler Keeps OCR At 2%

Reserve Bank governor Graeme Wheeler kept the official cash rate at 2 percent and said more easing will be needed to get inflation back within the target band. More>>

ALSO:

Get More From Scoop

 
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news