Which hedge funds invest in startups

FundsInvest the hedge fund type

Nobody can say that Germans are particularly friendly towards hedge funds. Negative headlines regularly fuel mistrust of the less regulated financial instruments. In early September, a New York court sentenced a hedge fund manager to nine years in prison for insider trading. The investment strategies that serious hedge fund managers pursue, on the other hand, apparently do not find German investors so bad - at least as long as they are used within a fixed framework.

There is growing interest in funds that use strategies from the world of hedge funds and that are regulated in accordance with the UCITS European fund directive. The assets under management in so-called alternative UCITS funds rose by around 37 billion euros in the first half of this year, which corresponds to an increase of 20 percent. The approximately 870 funds on the market now manage a total of around 219 billion euros, reports the Hamburg-based analysis company Absolut Research. This means that alternative UCITS funds are still niche products. As an admixture for the depot, however, they have gained in importance.

Alternative strategies reduce the risk of loss

Alternative equity funds recorded the greatest growth in the first half of the year. Their assets under management rose by 15 billion euros or 35 percent. Some of the products offer attractive risk-return profiles, says Michael Busack, Managing Director of Absolut Research. When the crises around the globe sent the stock markets down in the summer, alternative equity funds held up well. The European share index EuroStoxx 50 fell by 3.4 percent in July. An index by Absolut Research, which shows the average development of alternative UCITS equity funds with an investment focus on Europe, lost only 0.8 percent in the same month. Busack's conclusion: In turbulent market phases, alternative equity strategies can significantly reduce the risk of loss.

Investors have recently been particularly interested in so-called equity long-short and event-driven strategies, shows a report by fund provider Alceda, which specializes in alternative investment solutions. The former bet on rising and falling share prices at the same time and should therefore perform positively in every market phase. Managers who use event-driven strategies want to take advantage of special situations. These include, for example, company takeovers or financial difficulties of companies. The market environment for both strategies still seems favorable: If the political crises escalate further, share prices could fall. The increasing number of company mergers and acquisitions, in turn, opens up investment opportunities for event-driven managers.

The first ETFs are tracking hedge fund indices

The high level of investor interest has resulted in several alternative UCITS funds being temporarily closed to new investors. Most recently, Alceda reports that six percent of the funds had restricted new inflows. Together, the products manage around 14 percent of the total assets that are in alternative UCITS funds. The temporarily closed funds include several products that pursue equity long-short strategies, such as the Schroder GAIA Egerton Equity fund (ISIN: LU0463469048) from British asset manager Schroders.

The limitation of the inflow of funds is a sign of quality, says Alceda boss Michael Sanders. With this step, fund managers want to ensure that they find enough attractive investments not to leave investors' capital lying idle. Investors who want to get into a fund for the first time, but cannot do so, don't get much of it.

However, private investors can also invest in hedge fund strategies in other ways than actively managed funds: Several providers of exchange-traded funds (ETFs) now have products in their range that replicate hedge fund indices. At the beginning of September, the provider Source, in cooperation with the hedge fund provider Man GLG, launched two ETFs that are supposed to bundle the best ideas in the field of alternative investments (ISIN: DE000A119M18 and DE000A119PG3). ETFs are just as suitable as active funds for diversifying the portfolio - and they are significantly cheaper.

An overview of alternative strategies

Long / Short: Fund managers bet on rising and falling prices at the same time, for stocks or bonds.

Event Driven: Fund managers take advantage of special situations, such as company takeovers or financial bottlenecks.

Global Macro: Fund managers try to foresee and take advantage of macroeconomic developments. There are different global macro strategies.

Arbitrage: Fund managers take advantage of price differences between stocks, such as convertibles and stocks. Arbitrage strategies exist for different asset classes.

Managed futures: Fund managers bet on the price development of futures contracts with the help of computer models.