India-focused hedge funds under strategy spotlight
lunedì, 5 giugno 2006
By Pratima Desai
LONDON (Reuters) - Funds using a hedge fund banner to charge higher fees while only betting on India's rising stock market are likely to come under the spotlight at a conference in Geneva later this month.
About 20 hedge funds focus purely on India and about another 700 funds concentrate on Asia Pacific, according to data provider HedgeFund Intelligence.
"Over the last three years, most so-called hedge funds have been sitting long ... It's shocking how many have underperformed the market," one investor with Indian hedge fund investments said.
India's stock market has been on a three-year bull run but prices have tumbled around 20 percent since a May 11 peak. The general upward trend is expected to resume, albeit with more volatility.
Hedge funds can typically charge annual management fees of between 1 and 2 percent and up to 20 percent of any outperformance of pre-set targets such as money market rates.
In contrast, traditional fund managers can sometimes barely muster half a percentage point of management fees and rarely charge performance fees.
"It will be interesting to see what the mood is like, some (India-focused) managers may well be facing redemptions," Sanjiv Shah, portfolio manager at Noble Asset Management, said.
TURBULENT TIMES
How to preserve and make money amid turbulence will also be a key question for investors at an Indian hedge fund conference on June 13 in Geneva organised by Jetfin Events (
www.jetfin.com).
"This conference is timely ... The correction we had in May was the sharpest in a long time," said Shah.
Most hedge funds are registered in lightly regulated offshore centres such as the Cayman Islands, which allows them to use derivatives and short sell to protect the downside.
Strategies that could be used include long/short, which is buying securities seen as cheap and short selling those seen as expensive, and market neutral, where longs offset shorts, leaving little or no exposure to overall market trends.
Also hedge fund managers could switch all their assets to cash if they see trouble ahead, unlike their counterparts in the traditional world, who are mandated to keep only a small percentage -- often around 5 percent -- of their assets in cash.
"We have investments in Asia and India and we will invest more there for our clients ... That is why we are going to the Jetfin event," one Swiss private banker said.
"As shown in the recent market swings, we prefer to invest in funds with less directionality, hence hedge funds."
Hedging in India is possible through derivatives like index and stock futures. But short selling in the cash market is more difficult at the present time as it involves borrowing stock.
"In India it's difficult to short most stocks ... There are restrictions for foreign investors and a lot of things need to change," said Pierre Lavaud, chairman of Jetfin events.
"But international players are in India, this is going to get bigger ... May was a correction, not a bear market."
oggi India Fund -7%
. ma mi interessa trovare un conforto per i poveri trader indiani che si stanno buttando giu dalla finestra.
