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Get the global rolling

Hedge funds are increasingly moving into the spotlight, with a number of high-profile fund managers moving out to launch their own funds. Do you think hedge funds are set to make a big break into the UK retail market over the next few years?

MO: They are unquestionably moving into the spotlight and, in markets such as these, the ability of funds to make money from both rising and falling share prices is attractive.

My concern is perception. They are still seen by manyas high risk and highly volatile and, given their offshore status, allied to high minimums, they are not instantly suitable for much of the private client market.

It is going to be an education process. I expect in time key IFAs and sophisticated investors will appreciate there are a whole range of hedge funds, some trying to hedge against risk, which will have their place in client portfolios. Even the traditional Witan Investment Trust has recently invested in a hedge fund for the first time, ironically to try and produce consistency at low risk. I also expect hedge funds of funds to be attractive to IFAs if we can tackle these prob-lems of high minimums and investor protection.

AM: The “Nobel Prizewinners” running a hedge fund took the world to the brink of disaster a couple of years ago. Our own star fund managers will hopefully fare a little better but I cannot see the general public rushing to buy hedge funds if they do not understand how they work. I think we tend to forget that only people in this industry know or care who the “stars” are. Now if the public thought that a hedge fund could be bought at a garden centre…

JS: Hedge funds have tended to be considered higher risk although there is no real reason for this as they can befairly low risk. At the moment, hedge funds are inaccessible to the majority of investors due to the very large minimum requirements but there is no reason that they cannot break into the UK retail market over the next few years.

The CGU-NU merger has seen the company halve its fund range and ditch the CGU brand. Do you think these are positive changes for the group?

MO: The CGU/NU merger had to lead to some rationalisation of funds and a rebranding exercise but I am not surprised to see the NU element being the more dominant force in investment terms. I have been impressed by NU&#39s progress over the last 12 months in areas such as the Cat-standard funds and its acquisition of some key fund managers. It means business in this market and the NU name is the one to take forward.

Just being slightly negative, reorganisations such as this are never easy and so we hope that the transition goes smoothly without dilutingthe performance of the funds.

AM: Personally, I think it isa good thing. Most insurance companies have tried to re-invent themselves as “investment” specialists in recent years with little success. Norwich Union was, however, one of the better insurance “investors” who showed an element of innovation in their Catmarked products.

I have always had problems recommending companies as investment specialists which also insure my car and house. If CGU stick to no-claims bonuses and NU to investment bonuses I think it will be better for everyone.

JS: We feel that these changes are quite positive. There is no real reason to continue with similar investments from both groups and therefore the better funds from each group have been opted to remain available for new investors. As far as the ditching of the CGU brand name is concerned, the publicity of the merger has been rife and a change in brand will not have a detrimental effect on the company&#39s business.

The departure of Henderson&#39s star tech team has sent a shudder through the IFA community. Can the fund realistically find managers to match the talents of Ashford-Russell and Woolley?

MO: For the investment trust, it is business as usual, with agreement to manage the trust until next September. For the unit trust, I think, realistically, they are going to have problems replacing Ashwood-Russell and Woolley. There are not many with the proven experience and track record of these two fund managers so Henderson will find it very difficult to replace them.

I will not be buying thefund but equally I will not be panicked into selling until we hear more about Henderson&#39s plans for the future. If we were to sell a fund because of a fund manager leaving, we would be writing to our clients every week at present.

AM: They say that investment is about timing and these two timed it best of all. Without knocking their ability in any way, they were in the right place at the right time against the right benchmark to earn the lofty reputations they no doubt deserve.

Competition within the technology sector is increasing all the time so any new manager will find it hard to keep Henderson at the top of the tree but the opportun-ity for someone else to makea name for themselves is undoubtedly there.

JS: It is always difficult when a high-profile fund loses high-profile fund managers. However, it does happen and itis crucial not to have a kneejerk reaction to the news. In this industry, fund managers do change and are successfully replaced.

Henderson has the resources to attract experienced replacements and in this instance have the time to research the marketplace thoroughly – the changes will not happen until the end of the year. Ashford-Russell and Woolley are not the only technology fund managers out there.

S&P has made its fund research free to IFAs, leaving fund managers to foot the entire bill. Do you still have confidence in the independence of its ratings?

MO: I have no problems with IFAs now being able to access fund research free. For the research to remain one of the key aspects of fund analysis, it clearly has to be seen to be representative of the industry and truly independent.

It would give me cause for alarm if there was evidence that companies which were not paying or paying less than other companies were then receiving less attention.

There has been talk of a number of companies leaving and, if so, that would undermine the whole concept. It can only work if the majority of companies are involved and the assessments are made on a truly independent basis across a wide range of funds rather than companies submitting their own particular “favourites”.

AM: There must be question marks over the independence of any organisation who rely on payments from those they are assessing. It is a bit like asking Alex Ferguson to referee Manchester United each week. Having said this, you need to trust integrity, otherwise, no one would accept a commission-based IFA&#39s recommendations.

The problem I have is more the possibility of rear-view ratings. The world of investment changes so rapidly that a rating made three months ago may be outdated by the time it is published. The investment IFA&#39s job is to spot tomorrow&#39s winners rather than yesterday&#39s successes.

JS: To date, Standard & Poor&#39s Fund Research has by far offered the best quality fund research. In the past, we have paid for this facility and acc-epted that good quality research does cost money.

Should anything change that either compromises the quality of research or the universe of funds that are considered, we would have to take this very seriously.

The latest Autif statistics show a growing interest in global investment. How confident are you feeling about global funds at the moment?

MO: The expansion of global funds, such as thematic type funds, will continue to gather momentum. We cannot look at the world any more on a geographical asset allocation basis as companies are becoming far more global in nature. BP Amoco, although domiciled in the UK and listed on the London Stock Exchange, has only 24 per cent of profits coming from the UK.

We are also living in a changing world with rapid advances in areas such as technology and healthcare and so, potentially, global funds are in a better position to “capture” the best companies in the various sectors.

The Isa rules are also helping here, in that clients can now look at Isas on a truly global basis with no geographical restrictions.

I would just add some downside, in that the plethora of new unit trust launches has to be looked at carefully. There are going to be some companies which may not have the glo-bal, analytical and fund management expertise necessary and some of the niche funds in specific themes, such as healthcare, have to be weighed up against the prospective risks that investors may want to take.

AM: It is amazing how many companies have apparently been following a thematic approach to investment for years but have forgotten to tell us. If you are a believer in the global growth of certain sectors, as I am, you cannot ignore global funds.

Isa rules have allowed the British to realise there is a bigger investment world out there than just the UK. No one can deny that the US calls the market tune – if the US collapses then we are all down the pan – so why not try to readjust our average portfolios by playing this market by proxy through a global thematic fund?

JS: We feel global funds are an important part of port-folios. Investing globally has always been important but with the globalisation of many institutions, it is easier than ever to invest internationally without taking a much higher level of risk.

Global funds are very useful as a core investment that can be built on with more country and sector-specific fundsto produce the right balance.


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