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Hedge funds are living up to their claim of delivering returns independent of market developments in the current capital market cycle. On closer inspection, there is no reason for the reluctance of institutional investors in Germany to invest in hedge funds, as the asset class is also efficiently investable for VAG-regulated investors. These are key findings of the 11th FERI Hedge Fund Investment Day, which was held again this year as a face-to-face event. "High inflation, rising interest rates and increasing volatility are playing into hedge funds' hands. The challenging market environment opens up scope for managers to make profits away from the general trends," said Carsten Hermann, Managing Director FERI Trust GmbH.
A look at the broad hedge fund market shows a mixed picture, he said. Hedge funds with a pronounced market dependency, such as in the area of "equity long/short" strategies, slipped into negative territory in the first six months of 2022, he said. "Global macro strategies, which generally lose less value than the global equity market in correction phases, and computer-based systematic trading approaches that consistently rely on market trends, on the other hand, achieved very good gains in the first half of 2022. Due to the volatility in the equity market, hedge fund strategies in particular have been more successful on the short side than they have been in many years, he said. "Hedge funds are currently delivering what they promise. Particularly in volatile markets, they contribute to balancing risk and thus to greater resilience and stability in investors' overall portfolios. They are therefore a sensible addition to classic assets," emphasized Marcus Storr, Head of Alternative Investments FERI Trust GmbH.
Globally, the number of hedge funds and the assets they manage have been growing for years, he said. In Germany, however, institutional investors have been reluctant to use the asset class for their portfolio allocation: Only 16 percent of German investors had invested funds in offshore hedge funds. Another 17 percent would invest in "liquid alternatives", i.e. hedge fund-like strategies with a UCITS product shell. VAG-regulated investors in Germany were mostly worried about legal restrictions. However, this is unfounded. Martina Nitschke, authorized signatory and head of the investment department of Verwaltungsgesellschaft für Versorgungswerke mbH (VGV), confirmed that VAG quotas and hedge funds are well compatible: "Especially under the VAG, it is possible to efficiently set up a diversifying offshore hedge fund allocation without any problems. It requires legal and tax guidance as well as dedicated economic due diligence of the target funds, including a money laundering check."
At the 11th FERI Hedge Fund Investment Day, institutional investors and portfolio managers discussed current developments in the hedge fund industry. Renowned hedge fund managers from London, Singapore and Hong Kong also provided insight into selected investment strategies.
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