Hedge funds a hit waiting to happen

By Fiona Moore

WHILE education remains at the top of the list of priorities of hedge fund managers, good performance has helped to raise the profile of the alternative asset class.

Absolute Capital’s managing director Deon Joubert notes that while absolute returns from hedge funds in September were down by 26 basis points, the overall result for the quarter was positive.

In comparison, some balanced funds were down as much as five per cent in their performance results for the same period.

“Unfortunately this was on the back of negative events,” Joubert says.

These sorts of results highlight an important characteristic of hedge funds - volatile and uncertain economic conditions create the opportunities for hedge funds to outperform the more mainstream asset classes.

However, it is this correlation between volatility and performance where most people become unstuck in their understanding of hedge funds.

And after spending a great deal of the past 18 months educating people about hedge funds, Joubert says there is still a long way to go.

“We need to get people to appreciate hedge funds and how to use them. Hedge funds are misunderstood. However, they can be used in most portfolios,” he says.

Joubert says the strategy used by a hedge fund manager can also dictate the performance of the fund.

“Hedge funds cannot make money all of the time because hedge funds need access to a certain amount of opportunity.”

He says given the fairly difficult and challenging times ahead, the outlook for hedge funds performance is good.

However, he predicts another 12 to 18 months of educating is required before hedge fund strategies take off.

Joubert agrees that often hedge funds are lumped in with other alternative investment strategies such as private equity, infrastructure, development capital and debt tools because they all have the common theme of absolute return.

However, Joubert says they are different from each other and it is something he is striving to make financial planners understand.

Absolute Capital’s managing director Deon Joubert will present the session titled‘There’s a new class in town—hedge funds and absolute return strategies’at 3pm on Friday.