To Hedge or not to Hedge.

The key difference between a Mutual and Hedge fund is that a hedge fund‘s return comes from the skill and strategy of the fund manager rather than the asset class. The risk comes from the strategy and the skill, rather than the market. Mutual funds depend on the market for performance. If the market falls the mutual fund loses money whereas a hedge fund will probably make money.
However unlike mutual funds, hedge funds have no long term performance record. They have only been available, to mostly institutional investors, for the past twenty years. Many companies are now targeting the retail investor because of the poor performance of mutuals in a bear market, the question is should you consider hedging?
Many blame hedge funds for the 1997 Asian economic crisis. Others remember Barings brought down by derivatives trading with a little help from Nick Leeson and still others remember Long Term Capital Management who had the Worlds top 100 investors as clients and went belly-up in 1998.
Another concern is hedge fund regulation. Many of the jurisdictions where they are domiciled are unregulated by any fiscal authority.
So to find an alternative investment product with capital guarantee and outstanding performance history deserves our attention.
There is one company which meets these criteria. I have to declare an interest here and admit to recommending this company to expatriates over the years. So if my bias is showing I invite readers to let me know of a better alternative investment product on the market to day
Part of the Man group founded in the 1790's in London and currently listed in the FTSE 100, Man investment products has since 1983 become a world leader in providing hedge funds products to the private client sector. Since1983 they have launched more than 200 alternative products. From their regional office in Hong Kong alone, they have raised in excess of US$2.7 Billion in the last five years.
Their latest offering in their Man IP220 family of products is the Series 4.
It is a medium to long term product which at maturity guarantees a return on investment of 120 % (Guarantor Lloyd's TSB Bank London)
The actual performance of the IP220 Series 1, 2, and 3 launched in 1996 1997 and 1998 shows a compound annual rate of return, net of all charges to, the 31st July 2002 of 19.7% 19.5% and 18.6% respectively. These are truly exceptional returns compared to world stocks over the same period
Series 4, is typical of many of Man's diverse portfolio is targeting annualized growth of between 17% and 18% and has a minimum subscription of US$50,000.
Matt Dillon of Man says “If you can create good performance for one two or three years to what extent is it luck or market conditions? But if you can survive for 10 years through a variety of market situations more credibility is given to performance”
Trading alternative investments the Man group has since 1990 to June 2002 returned 691.2% compared to World Stocks return of 151.5%.
These figures explain my bias for this company's products. So back to the question. Shouild you consider hedging?
Dillon again” In a bull market traditional investments may outperform many of the hedge fund strategies But it is not an either/or question. You should have a portfolio consisting of traditional investments and alternative investments including hedge funds. The point is diversification”
I wonder how many agree.