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Are Germans learning to love hedge funds?

Legislation is less than two years old but demand for alternative investments seems to be picking up at last.

German investors might at last be warming to hedge funds. Citigroup, for one, believes so and is about to test the waters. It has just launched the first long/short hedge fund off its platform in Germany. Teaming up with German securities trading house Baader Wertpapierhandelsbank as portfolio manager, the fund will be sold to institutional investors in Germany and Austria though private placements via Bank Medici.

It's an interesting move. As Justin Dew, senior hedge fund specialist at Standard & Poor's, points out: "It is pretty brave of Citigroup to go ahead with this launch, given the perceived negativity towards investing in hedge funds in Germany."

One of the explanations most analysts give for this poor uptake has been the negative political atmosphere. However, Steffen Gnutzmann, tax lawyer in the asset management practice of PricewaterhouseCoopers in Frankfurt, says: "The political problems that have been associated with hedge funds is hype." Rather, he blames the slow development of hedge funds in Germany on their late arrival. Legislation for onshore hedge funds was not put in place in Germany until January 2004. Furthermore, the new legislation required fund managers to reveal their trading positions twice a year.

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