CityWire.co.uk – Funds of hedge funds deserve a place in many portfolios but financial advisers are still uncomfortable with their complexities.
The argument for funds of hedge funds (FoHF) to be authorised for sale to the retail market is increasingly relevant in light of recent market turbulence but the IFA community remains somewhat nervous about recommending these complex products despite their ostensible aim of protecting investors’ money.
Traditionally private investors have looked to a combination of equities, cash and bonds to generate returns. However, the severe correction in markets in May is an example of the volatility to which the market is periodically susceptible and this makes investors very nervous and inclined to look for products that offer some security. As the name suggests, hedge funds are designed to hedge out risk and in that sense they are more suitable for cautious investors, however, they are still perceived by many as high-risk vehicles.
Some of the most talented money-makers in the investment industry run hedge funds, which are traditionally only available to the super-rich. These individuals focus on delivering positive returns across all market cycles. FoHFs are seen as the best way to offer retail investors exposure to this market in such a way as to cater for those who are not expert or rich enough to be able to invest in a single hedge fund.
