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Hedge funds: the new investment bubble?

The happy solution to volatile equity markets or an accident waiting to happen? Hedge funds, long the darlings of super-wealthy individuals, are now attracting attention from institutions and even retail investors. Funds are pouring into the sector faster than ever. But though the salesmen say there is plenty more room for investors to fill their boots, some people fear that they could be the next investment bubble after dot coms and private equity.

Sandra Manzke

It's almost as if Long-Term Capital Management had never happened. Three years ago, the very mention of the term hedge fund was enough to have most investors running for cover. The spectacular collapse of LTCM caused such a furore that anyone calling themselves a hedge fund manager was liable to be held in the contempt usually reserved for politicians, lawyers or journalists.

Today the story is very different. Hedge funds are the saviours of investment, at least according to those whose job it is to sell them.

"A broadly diversified portfolio of hedge funds can provide double-digit returns at bond level risk," says Josh Weinreich, head of hedge funds at Deutsche Asset Management.

Deutsche is setting an ambitious target to become the number one player in funds of hedge funds. These vehicles offer investors, for a fee, access to a bundled-up package of hedge funds.

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