WEST PALM BEACH, FL (HEDGECO.NET) – Chris Hitchen, the new Chairman of the National Association of Pension Funds said the hedge fund industry is �inherently unstable.� According to him, �this may bethe greatest limited factor in determining the eventual size of the hedge fund industry.� Hitchen said that part of the reason stems from hedge funds use of leverage, added to the objective of fundmanagers to generate absolute returns to the funds investors, while operating on short time investment horizons.
Hitchen also mentioned factors, which he characterized as �limiting factors,� which may help to decide the actual size of hedge funds. He said, �Moreover, it does not, in general, seek to exploit any theoretical source of economic return. Unlike equities or bonds, hedge fund returns should primarily be derived from pure skill, this may be the greatest limited factor in determining the eventual size of the hedge fund industry�, Hitchen said.
But the facts of the accelerated growth data for the global hedge fund industry tend to contradict Mr. Hitchen�s assertions. Hedge funds have witnessed very strong asset inflow during the past 3-4 years, assets managed by the hedge fund industry continues to grow from year-to-year, and hedge funds now manage over US$800 billion, according to the latest growth numbers.
There is also the issue that an increasing number of pension funds, endowments, and other categories of institutional investors continue to adopt hedge fund strategies, by increasing their overall percentage of hedge fund portfolios. Hitchen however alluded to the point that pension plans continue to invest in hedge fund strategies in growing numbers when he said, �In summary, we are inclined to use hedge funds as an asset in a moderate but meaningful way as a diversifying, moderate return asset, which has acceptably low and appealing risk by comparison with other assets.�
According to new data provided by Greenwich Associates, a hedge fund research organization, hedge fund use by US pension funds and other institutions grew steadily in 2003. According to Greenwich Associates, 23% of funds reported hedge fund use, an increase from 12% in 2000. Such trend seems to be continuing in 2004, according to hedge fund market analysts.
Paul Oranika
Editor-in-Chief
HedgeCo.Net
Email: [email protected]
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