The times are certainly changing.
The times are certainly changing. Even hedge funds, regarded as the investors of the Wild West with their alternative investment strategies, are playing by traditional rules and following the age-old dogma of diversification.
First on the menu is geographical diversification. This is certainly seen in Deutsche Bank’s annual alternative investment survey, which found that the investors surveyed plan to increase their hedge fund allocations to emerging markets, with the Middle East the top choice and North America coming off worst.
Around 45 per cent of investors surveyed by Deutsche’s hedge fund capital group think funds investing in the Middle East and North Africa will be the top performers in 2008. ‘[This] indicates a clear redistribution of capital toward emerging markets,’ said Sean Capstick, co-head of the group.
Funds are already getting into the action. For example Michael Spencer, founder of leading inter-dealer broker Icap, is ploughing tens of millions of dollars into a new hedge fund to profit from frontier markets in Africa and the Middle East.
At the same time a former director of UBS’s investment bank has set up an Africa hedge fund and expects to raise more than USD200m, making it one of the biggest of a number of recent launches of hedge funds investing in the region, taking advantage of investor appetite for emerging markets and positive impact of rising commodity export prices on the continent’s economies.
The Deutsche Bank survey said that cash levels among hedge funds are currently high as investors take a ‘wait and see’ approach to investing, but 53 per cent of investors holding cash now plan to spend it over the next 12 months. Funds that follow the diversification path can look forward to more than their fair share.
