John Lowry, chairman and co-founder of ML Capital, has warned that many hedge fund managers do not realise their industry is undergoing a revolution.
Speaking to Latin American hedge fund managers at the fifth annual Hedge Funds World LatAm Conference, Lowry said new US and European regulations will force hedge funds into becoming mainstream investments.
Lowry said “In 2008, the MSCI World fell by 42 per cent, whilst the average hedge fund fell by 18.3 per cent. Many hedge funds demonstrated they offer significant benefits when used for their original purpose of creating steadier returns for their clients. My company’s recent research shows that this is what is leading to the upsurge of institutional investors’ demand for portfolio-hedging and hedge funds.”
He added that emerging markets are likely to continue as an increasingly popular investment destination for some years. Latin American markets and focused hedge funds will be major beneficiaries, he said.
“However, many Euro-politicians have reacted to the crunch by proposing punitive conditions on the distribution of funds that are not domiciled within the EU. This is protectionism, effectively, and it has been suggested that funds should have an EU identity to trade there, or at the very least, should hold EU marketing passports. ML Capital’s research suggests that this would immediately slash demand for Latin American funds in their present form, just when they have so much to offer,” said Lowry.
He believes the most restrictive aspects of the proposed Ucits III legislation will not be put into practice. However, investors now require evidence of greater risk controls and regulation.
“The Ucits III ‘stamp of approval’ is now available to many hedge funds, and I hope and believe that by embracing the Ucits framework, Latin American hedge funds will be welcomed across the world, including the EU.”
Although hedge fund managers have traditionally shied away from public scrutiny with offshore-registered funds, Lowry believes they may now see the benefits of taking the European onshore route for parts of their business. He said that Ucits III-type funds consisting of one or more hedge funds will be able to be marketed to retail as well as professional investors throughout Europe. He believes that a new market of 200 million EU citizens will attract those LatAm hedge fund managers that are willing to take advantage of the changes taking place.
