New Star director Ravi Anand believes an increasing demand for institutional-style benchmarks in the retail market has put some investors off hedge funds as the industry looks for what is traditionally seen as the safer option.
Anand said most IFAs now see a 10 per cent annual return as excellent even though other funds with differing mandates may offer much better returns.
He said: “Institutions are being given money and are being told that such and such wants a return of Libor plus four or five. Some hedge funds can offer as much as a 20 per cent return per annum but that is overlooked because of the perceived risk. It seems that the industry is happier with bigger funds offering lower returns but to me that is not that attractive.”
IFG financial planning strategist Donna Bradshaw disagreed, claiming that the additional upside is shrouded by the potential risks that come in tow.
She said: “It is a normal perception that higher return means higher risk. If I am to be given that choice, I would choose to stay with what I know more about – equities – where there is plenty of excellent managers with good, long-term records.
HSBC alternative investment CEO Barbara Rupf Bee said: “If you look at the traditional institution it often takes them 12 to 18 months to make profit, while there is also the question of just how much of the pot of money it is they actually control. High-net-worth clients still dominate the picture and the focus remains purely on returns as opposed to risk-adjusted ones.”