Antoine Massad

'We have already seen more interest from private clients in 2006,' explains Antoine Massad, CEO, Man Investments Middle East. 'The stock market and real estate boom was a negative for us, at least with private clients.

'In 2004 and 2005 we saw a fall in new money invested in hedge funds by private clients, and the balance of investors was 50% private clients and 50% institutions, while the holdings are 68% private and 32% institutional but there were few redemptions. Now the private clients are back.'

The benefit of hedge funds over other asset classes is well known. Hedge funds are not correlated to other assets and so provide protection in periods of volatility, indeed they positively thrive on market swings, and the more stable markets of the past two years have delivered less attractive returns.

'Returns in 2004 and 2005 were still positive,' Mr. Massad points out: '2004 was a difficult year with a 2-6% return, but 2005 was a good year, especially in the second half, and our Flagship fund returned 17% year-on-year, or 26% if you take the 12 months to the end of February.'

Hedge fund importance

Mr. Massad also notes the huge increase in interest in hedge funds as an investment class. At the first Hedge Fund World he recalls that just 60 delegates attended and most of them were sellers, whereas the latest conference had ten times as many delegates and at least 30% were buyers.

'Hedge funds have grown in size and acceptability,' he says. 'Today hedge funds have a bigger role in portfolios'. This is reflected in the size of Man Investment Middle East's business with $4.6 billion under management out of a global total of $46 billion.

'In three to five years institutions may exceed our private clients, and indeed the largest institutional investor that we have in hedge funds is from this region. Institutions are long-term investors and in the Middle East we have governments, semi-governmental, pension funds, banks, industrial holding groups and central banks as clients.

'We now have a locally incorporated office in the Dubai International Financial Centre, and we would expect to be able to offer locally invested hedge funds within a couple of years. Man Financial has already started trading in gold futures contracts in Dubai.

Innovation crucial

He adds: 'Innovation is essential in the hedge fund industry and gold is just one of a whole range of commodities that are a part of a popular trading strategy these days.'

On the other hand, private clients are sure to be looking to hedge funds now that local stock markets are falling and the instant profits of off-plan real estate are over in some cities. Whether hedge funds can deliver the very high returns that they once did remains to be seen.