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F&C says volatility will boost hedge funds

F&C is expecting funds of hedge funds to outperform traditional multi-manager as it believes they should be able to benefit from recent higher levels of volatility in equity markets.

The company says hedge funds offer the best risk and reward profile during times of high volatility. Over the last three years, volatility has been relatively low but F&C believes that this is unsustainable.

According to F&C’s alternative investment division, the risk of losing money is lower with hedge funds compared with equities.

It cannot understand why UK pension funds are hesitant to invest in hedge funds and says European schemes are benefiting from their higher exposure to the asset class relative to the UK.

F&C Partners managing partner Anthony Culligain says: “The recent volatility in equity markets has demonstrated the benefits of hedge funds. There is as much value in not losing money as there is in generating returns.

“Pension funds in the UK are traditionally conservative. They are advised by consultants who are slow to recommend hedge funds.

“I think the high-profile collapse of LTCM, which was a major hedge fund failure, weighs on people’s minds but these instances are sensationalised.”

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