Advisers and providers have clashed over what level of diversification a client’s portfolio should have to hedge fundsSome advisers at the round table meeting said that 5-10 per cent is a fair amount of exposure, given the number of questions over performance, cost and transparency, while providers say having such a minimal amount is not efficient and will fail to show a hedge fund’s usefulness as a true diversifier.
IFG financial planning strategist Donna Bradshaw said most IFAs would be overzealous to place more than 10 per cent into a portfolio given their lack of education on the subject.
She said: “To commit 20 per cent is difficult and, more to the point, unrealistic, as a typical IFA, who does not have a wide-ranging knowledge of hedge funds , would struggle to get a client to place that much trust in an asset class that still lacks a long-term track record.”
But HSBC alternative investments CEO Barbara Rupf Bee said that would only scratch the surface of what hedge funds can offer.
She said: “An exposure of at least 10 per cent is needed to access their true value as a diversifier. Having 5 per cent in hedge funds proves nothing. You need the impact of the diversifier in order for it to be precisely that. It is all a question of education.”
New Star director Ravi Anand says: “IFAs do need to recognise what their skillset is but by the same premise, they have to pay close attention to what the client wants above all else. Surely, having a maximum of 5 per cent in hedge funds across cautious, balanced and aggressive funds makes no sense.”
BestInvest head of communications Justin Modray says: “If we could trust them completely, we could invest 100 per cent in hedge funds. It may take a two or three-year market downturn for the full benefit of hedge funds to come through.”