Rothschild adds hedge fund calculators

Rothschildhas launched a new web-based calculator for financial planners to explain hedge funds to their clients.

The calculator could also help financial planners themselves to understand the emerging market for hedge fund investments, says Richard Keary, associate director, alternative investments at Rothschild.

“It’s amazing how many financial planners think currency hedging is hedge funding,” Keary says.

Financial planners appear to be ‘sitting back’ from hedge funds as they seek to understand the operations of the investment vehicle, he says.

“I think financial planners have to feel comfortable with these things before they can explain them to their customers,” he says.

Various dealer groups have been introduced to the new calculator, which was developed locally by Rothschild staff.

The calculator will go ‘live’ in a few weeks Keary says. Planners will be able to register to use the tool from the Rothschild site.

“This calculator allows the planner to be flexible,” Keary says. “The financial planner will be able to use this for their own benefit or to explain why these hedge funds are good investments.”

The calculator offers performance data on a range of asset classes, with results/risk listed.

Over 10 years, a fund-of-funds hedge fund shows returns of 14.8 per cent with 5.9 per cent risk. By comparison, the figures for Australian equities are 11.5 per cent return and 13.3 per cent risk, while Australian fixed interest shows 8.8 per cent for 4.7 per cent risk.

Australia has between 30 and 50 hedge funds, and that figure is growing.

Forthcoming market changes spell good news for hedge funds, Keary says.

“Any movement in the market is good for hedge funds. Falling interest rates benefit hedge funds and inflationary periods mean that economic activity is strong, which leads to a lot of merger-type activity — and that benefits arbitrage funds.”

He strongly recommends that first-time investors use a fund-of-funds to help counteract volatility.

He also warns that hedge funds do present some drawbacks, including not being as liquid as share funds, not being as tax effective as Australian share, and a lack of transparency.