Investors return to chase listed hedge fund profits
Investors are once again buying shares in the listed funds of hedge funds sector, as efforts by managers to make their once prized holdings more attractive offer buyers the chance of short-term profits.
The volume of trading in shares of listed funds of hedge funds has jumped by 61% this year, to £1.3bn (€1.5bn), according to analysis by the Royal Bank of Scotland. This follows a dearth of trading activity in 2008 as the sector, along with the UK stockmarket, fell sharply.
Mark James, executive director on the alternative funds team at RBS, said hedge funds, as well as bank proprietary trading desks, are among the new investors in the 25 funds of hedge funds listed in the UK and Switzerland.
Their interest stands in stark contrast to last year, when many investors looking to offload both equities and hedge funds found that selling shares in listed hedge funds helped solve both problems.
In their rush to exit the sector, funds’ shares slid further than the value of their investments, leaving the equities trading at wide discounts to net asset values.
To narrow the gap, at least four managers boosted demand for shares of their funds by buying them themselves, either in the market or by promising to buy the shares directly from their holders either at, or near, the fund's NAV.
Partly as a result of this, shares in the sector are up this year by 37%, RBS said. The opportunity to buy at discounts to NAV, and then sell at a profit soon after at narrower discounts has brought investors back to the £3.6bn sector.
RBS's James said buying shares trading at wide discounts to NAV "offers substantial price upside if the fund offers [to buy back] all, or even some, of its assets back at close to NAV. Some investors did this, and it has proved a great investment".
However the renewed interest comes too late for six funds of funds, which have decided since the start of last year to delist. These are: Close Man Hedge, F&C Event Driven, HSBC European Absolute, New Star RBC Hedge 250, Opus Alternative Strategies and PSolve Alternatives PCC. It might also be too late for the CMA Global Hedge fund, one of the sector's largest portfolios. Its own board yesterday recommended shareholders vote to wind the fund down at a meeting to be held next month, after tender offers for its shares failed to narrow the gap between the share price and NAV, which stands at about 19%.
--write to dwalker@efinancialnews.com
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