Overseas hedge fund disasters may not happen in Australia

A senior financial services executive with a major accounting firm has predicted the poor hedge fund practices and outcomes experienced overseas may not be witnessed in the domestic hedge fund market.

Deloitte partner, financial services assurance and advisory, Sarah Woodhouse said: “The regulatory environment for hedge funds here in Australia is different to that elsewhere in the world, so you can’t assume [that] if you are hearing of hedge fund disasters in the US that it is automatically going to play out in Australia.”

However, Woodhouse pointed out that many local investors are looking to include the best hedge fund strategies in their portfolios, some of which are based in overseas markets.

“The larger superannuation trustees do allocate to obviously the best, and the best might be sitting somewhere other than Australia,” she said.

As such, Woodhouse warned domestic investors still needed to be aware of the issues facing overseas hedge fund markets.

“The industry in Australia very much does have to be aware of what those global issues are and keep an eye on what can be done about them,” she warned.

According to Woodhouse, most of these issues are centred around risk management and valuation practices, and were highlighted by a global survey released two weeks ago by Deloitte called “Precautions that Pay Off”.

“It was a survey done across global hedge funds looking at what their risk management and valuation practices are, and it doesn’t [paint] a particularly healthy picture,” she said.

“It lists a number of red flags where the hedge funds that were surveyed did not appropriately monitor and measure the risk of what they were trading in,” Woodhouse explained.