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Extreme variety in hedge fund returns

RETURNS from Australian-based hedge funds varied from as high as 31.6 per cent to minus 8.3 per cent last year, a new study has found.

The performance of hedge funds covered by the survey shows the very wide variation in returns.

It also shows that hedge fund returns are not correlated with returns from share markets generally.

This is a major selling point for hedge fund managers, who point out that they provide an effective means of diversification.

InvestorInfo’s inaugural Hedge Funds Report covers 55 different funds and investment strategies run by 32 firms.

It found that most growth had been in fund-of-fund hedge funds, that is, funds that invest in a broad range of existing hedge funds.

This approach allows investors, such as superannuation funds, to be exposed to a range of hedge fund managers utilising a variety of investment styles.

The report also found that most growth had been in funds established by offshore managers with an Australian presence, such as Chicago-based Harris Associates of London-based FRM.

Local stand-alone hedge fund managers have found it difficult attracting mandates, the report said.

It found that most fund-of-fund hedge funds achieved positive returns in the year to March 2002, a period when international share-markets (measured by the MSCI World ex-Australia index) fell by 12.7 per cent.

Coastal Magnum Diversified Performance Fund was the best-per-forming fund-of-funds hedge fund, posting an 8.7 per cent gain.

The best-performing ‘single strategy’ fund was the K2 Australian Absolute Return Fund with a 31.6 per cent gain.

The top-performing ‘multi-strategy’ fund was Eclectic Capital Management, which posted a 27 per cent gain.

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