FRANKFURT (dpa) – Ever since a few spectacular near-bankruptcies, they were put in the same boat as gambling.
But hedge funds are now becoming respectable again: thanks to the doldrums on stock markets, many investors are increasingly attracted by the high returns promised by high-risk portfolios, no matter how things are going on financial markets.Last year alone, 100 new hedge funds were set up in Europe, according to Jacob Schmidt, director of the independent Allenbridge Hedgeinfo institute in London.“For 2001 we are expecting three to five times as many new funds,” he said.The risk funds got a bad name from financial tycoon George Soros, who once pushed the pound sterling up against the wall with his speculative deals.Then in 1998 the Long-Term Capital Management Fund nearly went bankrupt, threatening to take world markets down with it. International banks had to underwrite a billion dollar package to rescue the fund.Less than three years later, the tide has turned. Schmidt reports that in 2000, some 7.5 billion dollars’ worth of fresh capital went into hedge funds.“In the first quarter of 2001 it was seven billion dollars,” he said. Some 85 per cent of the money went into U.S. hedge funds.But German financial institutes are also getting into the action and are trying to make hedge funds palatable to private customers.So-called “index certificates” are the main trend, in which money goes into various hedge funds in order to spread the risks more evenly. And, now even insurance can be taken out on speculative investments.“Such insurance always comes at the expense of yields,” notes Wolfgang Gerke, professor for banking and securities at Erlangen- Nuremberg University. Pure hedge funds are interesting for many investors precisely because they offer no such protection.Inexperienced or small-time investors are therefore best-advised not to touch risk funds.“For the average investor it is very difficult to see through the strategies of a hedge fund,” Gerke noted.An example of German involvement in hedge funds came last summer, when Deutsche Bank launched its Xavex HedgeSelect Certificate, which in a very short period attracted around 1.8 billion marks (790 million dollars).Schmidt says that private investors are less conservative than are large-scale institutions like insurance companies and pension funds.“Just think about how many people lost their money on the Neuer Markt,” he said, referring to the technology-oriented new market shares on the Frankfurt Stock Exchange.While normal investors only make money if their shares rise in value, hedge funds can also make money when shares drop. They function the same way as placing bet, in this case about future share, currency or interest rate developments.The money used for such wagers comes not only from investors, but also is borrowed by hedge-fund professionals. The potential profits are thereby increased – as are the potential losses.Hedge funds are not legally regulated in Germany. The Finance Ministry says this is not necessary because such funds are of interest only to a small group of very powerful investors.But Gerke by contrast expects there will be more hedge funds in Europe, and not only just for the professionals.“The lawmakers must start thinking about how they should get hedge funds out of the grey area,” the professor said.In a more recent example, the subscription period has just expired for two Index-Certificates, each for 25 hedge funds, offered by HypoVereinsbank. The minimum share is 5,000 euros (4,300 dollars).According to Gerhard Biasi, head of the department for Alternative Investment, HypeVereinsbank mainly has wealthy private customers in mind, with the promise of an annual yield of 10 to 12 per cent.“We recommend investing only five to ten per cent of one’s wealth in hedge funds,” he said.Thanks to globalisation, financial markets have been put on an equal footing, and investors are therefore searching for a broader spreading of risks.“Whatever we buy, we are all attending the same party,” Biasi said. “Investors are now trying to attend different parties.”
