Investing in alternate investments may have been on the decline for high net worth investors recently, but the trend may not last for long, ...

Investing in alternate investments may have been on the decline for high net worth investors recently, but the trend may not last for long, say industry insiders. “Across the industry we get the sense that assets from HNWs have declined and the slack has been taken up by institutional investors. However, we haven't seen outflows at Lombard Odier Darier Hentsch,” Daniel Penseyres, the bank’s head of hedge funds marketing and development told WealthBriefing. He added: “But HNWs are not like institutional clients – they don’t think in terms of asset/liability management - so their needs and objectives are significantly different as as hedge fund investing is concerned." LODH currently has $2.2 billion in hedge fund assets, a figure that has grown ten times since 2000, and currently has one of the widest offerings of Swiss-registerd hedge fund of funds with around 95 individual managers across many strategies. In addition, the bank’s clients have more than SFr600 million in third-party funds of hedge funds. Mr Penseyres is in no doubt that HNWs will continue to invest in hedge funds, especially in declining equity markets or if bond yields rise. “Whatever happens, hedge funds will still provide good levels of diversification and fund of funds managers will always seek out exceptional talent." Many in the hedge funds industry have been quick to blame the press for client negativity towards alternative assets following the convertible arbitrage problems earlier this year. But hedge fund professionals are sure that the industry will not be de-railed by such a minor market set-back – if for no other reason than their relative regulatory position often puts them at such an advantage to mutual funds. “Relatively light regulation throughout the world is also hugely beneficial to hedge funds, especially in respect of what assets can be held compared to a mutual fund. For instance, they can benefit from price anomalies when a bond is downgraded to below investment grade and must be sold from a mutual fund portfolio, thus artificially pushing down the price,” said Mr Penseyres. The rise in corporate governance concerns which is percolating from the Anglo-Saxon world into continental Europe is playing into the hands of the hedge funds. Major hedge funds are seeing a huge opportunity to get involved in corporate activism and are thus being able to have a big influence on management. This is thought by commentators to give hedge funds the chance to increase returns in the future. LODH's philosopy relies on a "building block" approach. "We mainly run funds of hedge funds dedicated by strategy. We have a strong emphasis on long/short strategy, but we run arbitrage and macro funds of funds as well. Like a lego game, we are able to build up an alternative portfolio that suits better to the client needs. The over-riding philosophy is not to loose capital in downward trends, try to capture at least two-thirds of an upward trend and to outperform the range traders in sideways markets," said Frank Juliano, senior hedge fund advisor at Lombard Odier.