Earlier this week I attended Hedge 2009 in London with our Executive Director, Craig Asche, who was also Chairman for part of the conference. One of the things I noticed was a good mix between investors and fund managers, and not too many service providers, which was a new experience!

While there were many interesting speakers, including David Murrin from Emergent, Nassim Taleb, Frank Fruitman of Loeb, and Gina Sanchez from The Ford Foundation, the topic I found most interesting was on hedge funds and portfolio construction.

Something that I first heard years ago, which has been repeated time and time again, is that there is danger when investors focus on a fund, or a selection of hedge funds, as the panacea for an ailing portfolio. Instead, conventional wisdom says it is key to review first principles, understand the underlying value of the potential investments, and confirm what a reasonable risk/reward expectation would be. It scares me to hear that investors are again focusing on hedge funds as the saviour of their portfolio without due consideration to the risks entailed and a reasonable performance expectation.

A lesson I would imagine emerges from the Madoff-type experiences is that investors will always need to do their homework and NEVER put their eggs in one basket. I hope this lesson isn’t lost in the race to reallocate.

Steve Wallace MSI, CAIA
Associate Director of Industry Relations - EMEA