Will hedge funds make Santa’s list?

With Christmas approaching, high net worth individuals (HNWs) will be asking themselves the perennial question: “What do you buy for a friend who already has everything?” Before the financial crisis, the answer was a fairly simple one – shares in a hedge fund. Just two years ago, these were highly prized, difficult to come by and appeared to offer some sort of protection against falling markets. All in all, they were the ultimate accessory for the wealthy private client. But a combination of Bernie Madoff, the financial crisis and a realisation that hedge funds no longer always do what is expected of them by hedging downside risk, have led to the end of the love affair between the rich and their leveraged portfolios. Figures from consultancy Create reveal that during the crisis of 2008, wealthy families – which initially powered the growth of the alternatives industry – were last year responsible for 80 per cent of pull-outs, despite holding less than two thirds of hedge fund assets. Over the next five years, the industry is expected to tackle institutions at the expense of private banks. There is a perception that pension funds and foundations are expected to achieve a certain rate of return, which can only be made through hedge funds. But a closer look shows signs of hope. A Goldman unit dealing with customised HNW portfolios is cranking up operations after a very quiet period. And the Man Group, ravaged during the crisis, when assets were almost halved by redemptions, reports new money coming predominantly from HNWs. While the masses are pouring out, feel the discerning few, this might be the right time to ask Santa for a little helper for their diversification needs. Schroders deal reflects growing confidence On the subject of early Christmas presents, Fred Van der Stappen, Schroders’ Amsterdam based, energetic head of intermediary business in the Benelux region, has delivered one to his suave Frankfurt-based boss, Achim Kuessner. The contents are a carefully wrapped agreement with Dutch banking group ABN Amro. The bank has chosen Schroders as a ‘strategic partner’, alongside the likes of Fidelity, JPMorgan and BlackRock, enabling the distribution of the London house’s products through retail and private banking branches. The fact that large banking chains are re-assessing their armoury, focusing once more on third party funds, means they are once again anticipating new flows. While Schroders will draw attention to the quality of its investment grade and high yield fixed income offering and commodities funds, the move reflects the fact that some private client confidence has returned, if not in the discretionary sector, than at least on the advisory side. With deposit interest almost non existent, wealthy individuals in Northern Europe are finally backing mutual funds once more.