Signs of Hope

With the surfeit of cataclysmic hedge fund news being reported daily, it’s easy to lose perspective.  However, Barton Biggs injected some balance into the hedge fund discussion with a piece in Fortune last week.  Wrote Biggs:

“In every bear market I have seen, the doomsayers concoct a statistical argument that the glory days for stocks are over, because a flood of selling by brutalized investors is inevitable, and the buyers have no money. This case always seems most compelling close to the end of the declines and is always marked by a wave of media pronouncements.”

Today, we take Biggs’ lead and deliver a newsreel made up entirely of “good news” stories that seem to suggest hedge funds may just survive the financial crisis after all…

Get Over The Hedge: “Wall Street is braced for a wave of fund redemptions that is unlikely to be as as large as feared.  Hedge funds are to the modern stock market as sun spots were to electronics in the 1960s: a convenient scapegoat when things go wrong without an evident cause.”

Study suggests private banks remain positive on alternatives: A survey of European private banks finds that “42% of private banks are recommending that clients increase their portfolio allocation to alternative assets such as private equity and commercial property in the next year, with 58% expecting that their suggested allocations will remain the same.”

Hiring outpaces firing for fund managers: “More asset managers are hiring than are firing staff, according to new research, despite the downturn in markets and investor confidence that has led many in the fund management industry to start cutting costs.”

Hedge Fund Outflows Seen at Just 6% in ’08: Citi: “The hedge fund industry could see net client outflows of just 6% during the whole of 2008, according to analysts at Citigroup Inc., who believe the United Kingdom’s traditional fund industry is shrinking at a faster rate.”

The Hedge Fund Collapse: “…hedge funds didn’t cause the credit crisis. Some are doing well, even spectacularly. And many will survive..many hedge fund managers are anticipating great times-if they survive. ‘This will be the best moneymaking environment of my career,’ the hedge fund veteran tells me. ‘Tons of competition are out, and even the capital that will survive is underlevered. And we are starting with disparities and opportunities you’ve never seen.'”

Hedge funds ‘are resilient’: “We are quite positive because even though things have been very dark the night is always darkest just before the dawn…Now that we have seen the sell off and that is pretty well out of the way then hedge funds are ideally placed to profit from market dislocation…”

UK pension funds move from equity into alternatives: “Half of UK pension funds plan to decrease their allocation to equity in favour of increasing investments in alternative assets, though transparency remains a driver for allocating to the class, a new study suggests.”

Alternatives have provided protection: “An indisputable majority of pension funds have claimed diversification into alternatives has protected them in the ongoing financial crisis, the results of the latest Global Pensions 100 Panel have shown.”

Crisis? What crisis? Some hedge funds are gaining: “Despite Wall Street’s reputation as a place of big money and bigger egos, many of the winners are reluctant to boast, particularly given the gaping losses threatening some rivals.”

Active management ‘will survive crisis’: “The move towards active asset management should ultimately survive the current economic crisis, says a prominent Austrian pension fund manager.”

Schwarzman says Blackstone’s model will hold up despite downturn: “…the investments made during years when there was a stock market decline were years in which private equity firm investments ultimately yielded the most. The two years in the last 20 in which such investments generated the most return were 1991, with 31% returns, and 2001, with 33%.”

Investment Consultants Focus Search Activity in Alternative Asset Classes-Hedge Funds and Funds of Hedge Funds-While Demand for Traditional Long-only Products is Stagnant: “Many long-only products have difficulty in generating consistent alpha, and institutions would rather index core asset classes using ETFs, index funds, or derivatives.”

One seeder warming from the chill over hedge funds: “The hot money leaving hedge funds today tends to be individuals. I’m seeing that most large, well-established pension funds are not redeeming.”

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