Hedge Funds: Growing in Popularity

OffshoreAlert

MIAMI, FL: February 12, 2007

It may come as a surprise to many investors that hedge funds – noted for the risky and exotic nature of their investments – performed worse last year than the much more conservative Standard & Poor’s 500 Index, which tracks the biggest corporations listed on the New York Stock Exchange.

Hedge funds returned 13% in 2006, compared with the 15.8% return of the S&P 500 Index, according to industry tracker Hedge Fund Research, Inc., of Chicago.

That still didn’t stop money pouring into them, however, with assets under management for hedge funds at December 31, 2006 swelling to $1.43 trillion – nearly three times the $500 billion give years earlier.

It might also interest investors to know that:

Approximately 80% of the world’s hedge funds are believed to be domiciled in the Cayman Islands, with the British Virgin Islands and Bermuda also among the most popular domiciles;
Hedge fund trading activity accounted for up to half the daily turnover on the New York Stock Exchange and the London Stock Exchange in 2005; and
Hedge fund managers typically collect between 1.5 and 2% of the assets under management as a management fee and, in addition, 20% of gross returns as a performance fee if a fund returns a profit.

The furious growth of the hedge fund industry has occurred despite several high-profile failures, such as the collapses of Long-Term Capital Management in 1998 and Amaranth Advisors, the latter of which failed in September, 2006 after losing approximately $6 billion in a single week on natural gas futures – making it the largest hedge fund collapse in history.

Hedge funds have grown to be so popular with investors and play such a significant role in the global economy that, as recently as the weekend, finance ministers from the Group of Seven richest countries in the world met in Germany and high on their agenda was regulatory oversight of the largely unregulated hedge fund industry.

Hedge funds have become “more complex and challenging”, according to a statement issued by the ministers, who fear that a major fund collapse could disrupt the world economy.

OffshoreAlert will go behind these “complex” and “challenging” issues during a special 75-minute session on ‘Hedge Fund Due Diligence: Onshore & Offshore’ at the 5th OffshoreAlert Financial Due Diligence Conference, which is being held in Miami, Florida on April 24-25, 2007.

A panel that includes Hannah Terhune, Founding Partner of Capital Management Law Group; Stuart Sybersma, a partner of Deloitte (Cayman); Nancy Goldstein, Associate Managing Director of risk managers Kroll; and Kevin Jones, principal of Hedge Check, will, among other things, discuss:

An Overview of the Hedge Fund industry – its significance and what you need to know about it;
Onshore versus Offshore Considerations – what are the key differences between onshore and offshore domiciled funds;
Hedge Fund Failure – reasons for hedge fund failure, including overview of recent high profile cases, and lessons learned;
Researching management- where to look and what to look for; and
Verifying Net Asset Values.

More information about this and other topics to be discussed at the 5th OffshoreAlert Due Diligence Conference can be viewed online at http://www.offshorealertconference.com/OACV/agenda.asp.