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5 Oct 2006

Hedge Funds and Australia

UBS hosted a Melbourne conference last week, attended by hedge funds FrontPoint Partners, Highbridge, Och-Ziff Capital Management, Pequot Capital and York Capital.

Finance Minister Nick Minchin said at the conference. “We have a very strong financial services industry,....and hedge funds add an extra dimension to that industry…..The critical thing with all investments is that people understand the risks….In terms of the investment marketplace, hedge funds have a critical role to play.”

In a report published in The Australian, Robert Clow writes, “Given the immense amounts of money that hedge funds have been able to raise and invest in the US and Europe, it is not surprising that they have mostly concentrated on those markets until now. But hedge funds now have so much money to put to work and the developed markets are so well-mined that they have turned increasingly to the Asia Pacific region.”

Hedge funds Fortress Investments and Tudor Investments already have Australian operations running. But more often the foreign firms parachute in, taking positions remotely from their external offices. One attraction in the market for merger is 45% of Australian takeover deals attract increased bids, according to the presentation at the UBS conference, compared with 5 to 10% of US deals.

The Australian industry manages $35 billion in hedge fund investment, according to a study compiled earlier this year by Axiss Australia. Another study completed in April by the University of NSW forecast that Australian investors would increase their hedge fund investment by 41% over the next 2 to 5 years.

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