FYI | May 14 2007
By Greg Peel
Only fools and horses.
From the country that would ‘appily sell you anyfing you wanted out the back of a van comes the latest trend “exotic” hedge funds. It would seem that to be a “hedge” fund these days one need only incorporate offshore and then charge a 2% management fee with a 20% performance fee. What the “hedge” fund might invest in after that is purely open slather. There need be little hedging going on.
But if hedge funds can offer investment opportunity outside the traditional markets of debt, equity, commodities and the like then investors with too much money and not enough time can indeed diversify their portfolios and perhaps provide themselves with some element of “hedge” against those markets turning down. Or at the very least they can attempt to snap up first-mover returns from the new breed of investment opportunities. And as London’s Financial Times reports, the opportunities are rapidly becoming limitless.
Thus today’s investor can look to place money in art, wine, or Hollywood films for example, allowing someone else to make the actual investment decisions. Quickly becoming popular are portfolios of unpaid credit card debt. Hedge funds purchase the debt and then send collection agencies around for a bit of knee-capping.
So many carbon credit trading desks have sprung up, says the FT, that UK Chancellor Gordon Brown changed the tax rules this year to ease investment in the sector.
And hedge funds have moved into the role of traditional banking. Three hedge funds provided the loan that allowed Malcolm Glazer to buy Manchester United. And if you’re a football fanatic – and most Poms are – you can invest in funds that “buy” promising young players and hope to cash in on lucrative transfer fees down the track.
Alternative investment specialist and “fund of hedge funds”, Forsyth Partners, is amazed at the number of appeals for money it receives for all sorts of exotic investments. Like most other funds of funds, it rejects most of them. Apart from potentially being illiquid investments that are hard to value, Forsyth is always wary when most requests arrive from hotmail accounts.
One hedge fund manager suggested it would stick to what it knows. “We are financial people”, he said, “we understand loans but we don’t understand art”. But the director of one wine investment fund suggested that in five years time wine would no longer be considered exotic, but rather a low-risk, reasonable-return investment.
What’s next? Tulips?