Less risky approach sees rich investors turning away from hedge funds

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RICH private investors are turning their backs on hedge funds because moves to attract more conservative pension fund clients mean managers no longer deliver the big returns that they crave.

The fastest growing source of new money for hedge funds is now pension funds and insurance companies who want managers to go easy on risky trades.

Funds are finding it hard to say no to the big money these investors offer so rich clients are feeling neglected.

The hedge fund industry’s changing investor base has also corresponded with explosive growth in size, leaving rich clients questioning how easy it will be for managers to make money in future. Global assets in hedge funds now top $2 trillion, far more than the $200bn or so run in the mid-1990s.

“That’s a huge deal,” said John Elmes at GenSpring Family Offices, which runs money for some of America’s most prominent families and has invested in hedge funds since the late ’80s.

“It makes it very hard for these managers to continue to outperform.”

Hedge funds seek to exploit and profit from inefficiencies in markets and have the bet to wager on prices falling as well as rising.