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‘Hedge funds can exploit world themes’

F&C optimistic despite signs of cherrypicking by funds

F&C Asset Management pre- dicts that the next six to 12 months will be good for funds of hedge funds despite concerns that the underlying managers are becoming more selective about the money they accept.

The hedge fund market witnessed a period of volatility and underperformance during the first half of this year but F&C believes it is now a good time for managers to add new positions at attractive prices, paving the way for better returns.

The firm has identified three themes which are likely to produce positive returns for funds of hedge funds. One is unprecedented corporate restructuring and consolidation across Europe. Another is that cash-rich US companies that have not spent money on repairing their balance sheets will be in a position to pay more dividends.

Finally, F&C anticipates an increase in bankruptcies within the bottom 10 to 15 per cent of companies, particularly in the US, as access to money will be increasingly difficult. This wave of bankruptcies will be useful for hedge funds that can trade the stocks and bonds of these companies cheaply.

F&C believes good hedge funds that are able to use these themes to their advantage will be very popular but are more likely to limit capacity than risk poor performance by accepting too much money.

Partner and senior fund of hedge fund portfolio manager Francois Barthelemy says: “Hedge funds have enjoyed a lot of new money and are becoming more discerning about which capital they accept. But there is always a steady flow of new hedge funds, some from people with 10 to 15 years’ experience. It is dynamic and funds of hedge funds cannot be stuck with a steady portfolio.”

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