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13 Nov 2007

Hedge Funds More Proactive in Search for New Research

Hedge funds manage external research more proactively than long only managers, according to a study released by Integrity Research Associates. Hedge funds review their external research more frequently than long only investment managers, are three times more likely to seek assistance finding external research, and are much less confident that they have already found the best sources of external research.
“Our study confirms that hedge funds are more aggressively seeking out new sources of research than long only managers,” says Michael Mayhew, Integrity’s chairman and author of the study. “Long only managers are complacent about external research whereas hedge funds are continuously looking for what’s new and innovative.”

Conducted in October, 2007, the survey polled forty-three research directors at US based hedge funds and long only institutional investors. The survey focused on how institutional investors source and value external research. Highlights from the study include:

• Forty-two percent (42%) of hedge funds evaluate their portfolio of research providers at least monthly compared to five percent (5%) of long only managers.
• Hedge funds are three times more likely to use external sources to identify research, with forty-five percent (45%) of hedge fund research directors using outside sources compared to thirteen percent (13%) for long only directors of research.
• Thirty percent (30%) of hedge funds were either Not Too Confident or Somewhat Confident that they are using the best external research available compared to eighteen percent (18%) of long only managers.

“As long only managers introduce more alternative product like 130/30 funds, they are talking the talk, but our survey suggests that they are not yet walking the walk,” adds Mayhew.

Hedge Funds See Best Performance In 5 Years

According to the HFN Hedge Fund Aggregate Average, the second round of U.S. Federal Reserve interest rate reductions pushed hedge fund returns up +3.32% in October 2007.

Strategies which rebounded sharply following the U.S. Fed's actions in September were again beneficiaries in October. The HFN Emerging Markets Average was +5.01% in October and +22.22% YTD. Energy sector funds took advantage of oil prices closing in on $100/barrel.

The hedge fund’s excellent performance wasn't limited to commodity related strategies, several equity related strategies outperformed broad equity benchmarks. Long only strategies outperformed the S&P 500 by the largest margin in the last twenty months. Additionally, technology sector funds returned +5.07% in October while the healthcare sector and small/micro cap funds returned +5.07% and 3.43%, respectively.

Hedge funds influenced by market volatility through options strategies produced their best average performance in five years, and macro funds continue to benefit from strong trends in currency and commodity markets. (HFN), a division of Channel Capital Group Inc, is a source for hedge fund news and information. Registered users include a wide range of institutional investors and high net worth individuals.