02/10/2008

Temporary investment freeze urged

Leading investment consultancy Watson Wyatt has sent an email to clients urging them not to invest in hedge funds while the current market uncertainty continues.

In a short, bullet-pointed message, it said: “As a temporary measure we would suggest that clients that would otherwise be investing in direct hedge funds or fund of hedge funds as at 1 October should hold off where possible while we continue with this analysis.”

In light of this, the company, whose clients have £10bn ($18bn) in single manager and fund of hedge funds, has advised a complete hiatus on all new investment.

It told clients: “Given some of the uncertainties (in particular the short-term uncertainty in respect of the Fed bailout), it almost certainly makes sense to stand back and see what happens before investing, particularly as many hedge funds have some form of lock-up.”

Investment advisor Clontarf Capital reasoned against the freeze, as clients are rarely able to move swiftly enough to time the re-entry into the area: “In the medium term we think that hedge funds will continue to have a role in institutional portfolios and are very wary of trying to time the entry and exit into the area or particular strategies,” commented Aoifinn Devitt, director.

Watson Wyatt goes on to say that it will now take the opportunity to use its client capital as a bargaining chip that could eventually return more favourable fees, liquidity provisions and key man clauses from its “favoured hedge funds”.

However, the email stresses that the firm is still working to find out the exact investment implications of its listed concerns, and also that the firm has not suddenly become negative on hedge funds. It advises current investors not to rush into redemptions.