February 02, 2007

Funds of Hedge Funds Head to London

-- Pushpa Sathish, Staff Writer

It’s a reversal of sorts – while the rich and famous are steering clear of hedge funds following Amaranth’s collapse, pension funds are flocking to invest their millions in funds of hedge funds, an option associated with a lower risk than hedge funds. The new brand of investors has pushed London to the top of the fund of hedge funds destination list – the British capital has overtaken Zurich as the favorite listing ground for these investment vehicles.

According to data from ABN AMRO, London went past Zurich in January, and as of December 2006, had £3 billion in listed funds of hedge funds, a figure that is more than twice that of Zurich. Mark James, director of alternative investments at ABN, attributes London’s surging lead to two factors - the decline in the support offered by local Swiss banks to funds listed in Zurich, and the innovative systems in London that manage the discount at which the shares trade to the value of the fund’s assets. FT reports:

Funds of hedge funds are closed-end companies similar to investment trusts, which issue shares then invest the proceeds in a portfolio of hedge funds. They appeal to investors looking to diversify the risk of owning a single hedge fund and offer regulatory and tax advantages to some investors, such as private individuals and life assurers.

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