It's all in a name for hedge funds when it comes to the marketing game, reports John Collett.
Hedge funds got a bad name when Wall Street's highest-flying hedge fund, Long-Term Capital Management, bet the wrong way on Russian bonds in the late 1990s. The US Federal Reserve was so worried about the collapse of the fund that it orchestrated a rescue package.
Since then it been a much-debated call by hedge fund managers whether it is a positive or a negative to use the term "hedge" in their marketing material. Many avoid the term altogether, with "absolute return manager" the preferred marketing moniker.
There is no accepted definition of a hedge fund. However, they share some common characteristics. A report just released by investment researcher Lonsec helps to shed some light on who is really a hedge fund manager and who is not.
Lonsec says hedge funds manage money with the aim of delivering positive returns rather than relative to a benchmark. They generally have fewer investment constraints; they can, for example, hold high levels of cash if they cannot fund value in the market. Another characteristic of hedge funds is that the managers' remuneration is skewed towards performance-based fees.
Lonsec has decided that Kerr Neilson's Platinum Asset Management is a hedge fund manager. Its International Fund and the version of the fund available through MLC (MLC-Platinum Global Fund) occupy two of Lonsec's highest "highly recommended" ratings. The other three are Barclays' Global Markets Fund, Basis Capital's Aust-Rim Opportunity Fund (fixed interest arbitrage) and the High Growth Shares Fund (equity long/short) managed by Melbourne boutique manager Portfolio Partners.
AXA's Diversified Hedge Fund has been placed on "redeem" by Lonsec as a result of continued poor performance and a deterioration in Lonsec's qualitative assessment of the manager. "Qualitative" is investment jargon for the quality of the people and investment process.
