New hedge funds to attract investors

By Chris Hutching

Friday 19th October 2001

Funds managers have found new marketing opportunities in adverse times by launching a wave of hedge funds in New Zealand and Australia.

The popularity of the new defensive funds is likely to attract investors who may feel they offer more stable returns than some of the global funds promoted strongly over the past couple of years.

The latest offering is from Rothschild Australia Asset Management and is comprised of a global fund of hedge funds providing positive returns, irrespective of market volatility. It follows the recent launch of the Rothschild Total Return Fund.

"Short" hedge fund managers select shares they think will fall in price. For example, a manager may identify shares trading at $1 and perceive they will fall to 70c. The manager borrows the shares and sells them at $1 and when the price drops to 70c buys them again at the cheaper price and returns them to the lender. This provides a profit - the sell price minus the buy price (plus brokerage and a fee for borrowing the shares). Some managers specialise in "long" selling.

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