Big investors choose start up hedge funds - 04/02/02

More than 50% of the world's top institutional investors are investing in start-up hedge funds and abandoning their preference for fund managers with long track records, according to a study by Deutsche Banc Alex Brown.

John Dyment, head of Deutsche Banc's hedge fund consulting arm, commented to the Financial Times that some of the best-performing funds were now closed to new investments. "This has forced investors to consider less-established fund managers," he said.

He argues that hedge funds are generally safer than other alternative investments, such as private equity. "Many investors thought that private equity and venture capital were not correlated with the equity markets, but they were proved wrong in the past two years," he said. "Hedge fund managers can make money in positive and negative markets."

"It's actually incredible that there is so little investment in hedge funds," he said.

The study found that institutional investors consider the most important aspect of manager selection were investment philosophy, followed by managers' pedigree and investment performance.

The findings were based on a survey of 168 institutional investors in the US, Europe and Asia. More than 50% of the respondents said they were increasing their exposure to alternative asset classes at the expense of traditional forms of investment. On average, investors are putting US15m directly into hedge funds, though higher amounts are being invested via funds of hedge funds.