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Star fund managers at the cutting hedge

After the recent exodus of star fund managers to smaller hedge fund boutiques, it was just a matter of time before the big investment houses found a way of making up for their losses.

The first appears to be Henderson which, with the launch of its new fund of hedge funds, is looking to tap into the UK&#39s star fund managers.

The fund&#39s aim is to give retail investors access to the big name fund managers which have quit the mainstream retail arena to run smaller hedge funds.

Once it is up and running next month, the portfolio promises to comprise a dream team of managers, which have otherwise been inaccessible to retail investors with less than $1m to invest.

So far, Henderson has mentioned the likes of former Barings European manager Crispin Odey and former Jupiter director Alan Miller as likely holdings in the new fund but it will be spoilt for choice as it picks the rest.

Deutsche&#39s Clare Flynn, Scottish Equitable&#39s Neil Smeaton, M&G&#39s Andrew Gibbs, Invesco&#39s Mike Lindsell and Merrill Lynch&#39s Peter Davies are all well respected managers who have left to run hedge funds in the past year.

If groups such as Liontrust are correct, the UK is set to see a proliferation of boutiques in the next few years as star managers become frustrated with running increasingly big funds inside the bigger houses.

The new fund is to be managed by Henderson director John Husselbee, who heads the firm&#39s multi-manager division. He says Henderson has been looking at launching this product for months but felt now was the best time in terms of UK sentiment towards hedge funds and market conditions.

He says: “I think the UK hedge fund market is in its infancy. It is well established in Europe and a mature market in the US and the UK is set to follow. For the UK, this is a new asset class which has the ability to protect investors from the downside of equity markets. It is also an industry which has attracted some of the most talented managers.”

Although Henderson&#39s dream team fund is arguably the most interesting offering so far, it is by no means the first or only hedge fund product to be targeted at the retail market. Matrix&#39s Tremont fund of hedge funds started the ball rolling while Deutsche&#39s Xavex, launched last month, became one of the first hedge fund products to qualify for use within an Isa.

Deutsche Bank director of investment funds research Martin Fothergill says: “We started a fund of hedge funds product in Europe, which was the initial inspiration for our UK fund.

It raised (£1.1bn) 1.8bn euros in four weeks, which was a fairly good incentive to try launching over here.

“There are also some spe-cific reasons why now is a good time for a product like this. Last year, retail investors experienced a lot of volatility in equity markets. The great beauty of hedge funds is how they perform in volatile markets.”

As hedge fund fever starts to spread, few fund managers are not considering a move into the market.

Last month, Morley announced plans for a split-capital investment trust which will invest part of its portfolio in the hedge fund sector.

Jupiter&#39s recruitment of the Lazard multi-manager team, led by John Chatfield-Roberts, was also inspired by plans to move into hedge funds.

There is, however, a degree of nervous sentiment among some IFAs, which is still unsure of the safety of hedge funds. Many investors still find it hard not to associate any mention of hedge funds with high-risk global macro funds such as George Soros&#39 long term capital management fund. Others are concerned that hedge funds&#39 lack of regulation and transparency make it difficult to assess their risk.

Henderson says it will insist on full disclosure from all the hedge funds held in its portfolio. But it will not insist on the managers making their transactions public, leaving the investor to put its faith in Henderson.

This week, marketing firm Sway held a hedge fund conference in London for the top 50 UK IFAs in a bid to break down some of the myths over hedge funds. Most IFAs are now keen to at least understand the main concepts and generally it seems they are starting to give the sector greater consideration.

As products which provide an element of protection to the downside of volatile markets, they are simply another tool which the IFA can use to build clients&#39 portfolios.

Plan Invest joint managing director Michael Owen has been wary of hedge funds in the past but is starting to open up to the idea of using them.

He says: “I am much warmer to hedge funds now and I think we will be using them before the year is out.”


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