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Opinion

Hedge fund AUMs: Hedge fund heaven – not hell

Hedge fund AUMs are on course to equal their 2008 peak, and Obama’s bank reform proposals should help, not hinder, the sector.

Hedge fund inflows are starting to pick up, and analysts suggest that assets under management will return to their 2008 peak during 2010. Just under $14 billion was allocated to hedge funds in the fourth quarter of 2009 – the largest quarterly inflows since the financial crisis began.

Secondly, the market is looking optimal for hedge funds. Liquidity is back. All but three of the strategies in Hedge Fund Research’s indices pool ended 2009 in positive territory, with the average up just over 20% as liquidity returned.

But the main reason why managers must be relieved is the proposal from US president Barack Obama that hedge funds should be split out of banks. At first glance, this might be seen to be damaging. If banks are not allowed to own hedge funds or invest in them, one source of assets will be lost. But from a different angle the plan looks promising. If banks are no longer allowed to do proprietary trading, a lot fewer parties will be chasing the same trades. And where will those traders go? To hedge funds, causing a resurgence of talent in the industry. And so JPMorgan’s Highbridge and Goldman Sachs Asset Management have to spin out on their own? It’s probably for the best.

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