Wealthy more cautious about riskier investments like hedge funds, summit hears

News - Banking

Written by Ray Clancy

Wednesday, 06 October 2010 10:03

Wealthy investors, whose millions helped fuel the hedge fund industry’s early growth spurt, still want to own alternative assets but on new terms as they are more cautious, according to private bankers.

Less than two years after the financial crisis decimated many portfolios, the average hedge fund lost 19% even though some prominent ones lost twice that much, the world’s wealthy are still moving more slowly and cautiously when it comes to alternative assets.

The crisis has ‘left a scar’, according to Anthony DeChellis, the Americas chief executive officer of Credit Suisse’s Private Bank, referring to the restrictions that hedge fund managers imposed on investors two years ago to prevent all assets from fleeing at once. Clients are still holding back he told the Reuters Global Private Banking Summit in New York.

And it is not just the wealthy in the US and Latin America that are feeling jitters when it comes to these often lucrative but sometimes risky portfolios with private bankers in Europe and Asia encountering similar trends.

‘We have seen a clear shift from alternatives into cash. I don’t mean Treasury bills, I mean cash, cash, cash,’ said Josef Stadler, global head of ultra high net worth at UBS.

As investors return to the $1.9 trillion hedge fund industry, where assets are still down 28% from the industry’s peak in 2008, they want the most established and often largest hedge fund firms, bankers said. On top of that, they want managers to make more concessions.

The taste for the tried and true is underscored by industry data that shows US hedge fund firms overseeing $5 billion in assets or more taking in 1% in new assets during the first half of the year. Roughly half of the slightly smaller firms, with assets of $1 billion or more, reported assets dropping or staying the same during that time, industry magazine AR reported last week.

Bankers are also saying that investors are now asking more probing questions of their hedge fund managers while also demanding greater freedoms that hint at changes once unthinkable in the super secretive industry.

‘People will require a lot more transparency going forward,’ said Samir Raslan, regional head of central, eastern and northern Europe, Africa and Turkey.

Exactly how hedge fund managers will react to this remains to be seen, but many bankers are saying that hedge fund managers are more sensitive to investors’ needs and are willing to at least talk about making changes.

One of the most important requirements jittery investors now have, their bankers said, is their ability to get money out quickly. Even now, years after the worst of the financial crisis has passed, some prominent hedge fund managers have still not returned all of the money that investors asked for.

‘There are still some managers who say I am not changing anything but many are becoming more flexible,’ DeChellis said.