Wealth managers seek shelter in hedge funds

Wealth managers have been sheltering more of their clients’ money in hedge funds in recent months, to escape the shaky equity markets.

The Association of Private Client Investment Managers and Stockbrokers (Apcims) is planning to change the weightings of its benchmark indices to better reflect this shift in how private client money is invested. It proposes to increase the allocation to hedge funds by taking money away from UK shares.

The change would reflect a growing appetite from private investors for products that can make money in falling as well as rising markets. Retail investors have increasingly been able to access hedge funds in recent years as funds with lower entry requirements have been launched.

While hedge funds have been losing value, they have done so at a slower rate than UK equities. The FTSE Hedge Fund index has dropped 5 per cent over the past quarter, compared with an 11 per cent fall on the FTSE All Share.

Three Apcims indices - income, balanced and growth, are used by private client wealth managers as a benchmark against which to measure the performance of their clients’ portfolios. But they are also a useful indication of where money is actually being placed.

Hedge funds were only added on to the Apcims indices in June last year, along with commercial property, to reflect a shift in how private wealth managers were investing money. At current levels, hedge funds make up 5 per cent of the growth and balanced portfolios and do not appear in the income portfolio. Under the new allocations, the income portfolio would have 2.5 per cent in hedge funds and the growth and balanced portfolios would have 7.5 per cent.

Not all wealth managers follow the Apcims indices as they are retrospective. Some managers are preparing their clients’ portfolios for when the market bottoms out, which they said could be the end of the year.

“It seems to us the wrong time to start committing to hedge funds for private clients – it’s the end of the cycle rather than the beginning,” said Charles MacKinnon, chief investment officer at Thurleigh Investment Managers. “We’re getting rid of hedge funds because we will want money later this year to buy equities.”

The FTSE 100 has staged something of a comeback this week, driven by a strong performance by financials, takeover rumours and a weakening oil price.