HEDGE FUNDS are funds which have the ability to sell short and use leverage to increase returns.
They invest in any number of strategies, and typically look for above average returns, whatever the market conditions. According to hedge fund information provider Eurekahedge, they are perhaps most readily identifiable by their structure, which is typically a limited partnership (the manager acting as general partner and investors acting as limited partners) with performance- related fees, high minimum investment requirements and restrictions on types of investor, entry and exit periods.
The first was launched in 1952 by financial journalist Alfred Winslow Jones, who tried to minimise the risk in holding long-term stock positions by short selling other stocks. Hedge fund managers make huge amounts of money annually. In 2006, the top 25 global managers earned more than $14 billion (€8.9 billion) between them.
Hedge funds in Ireland
Although the first hedge fund was launched in 1952, the industry didn't take off until the late 1980s. But despite the post-Celtic Tiger boom in the number of wealthy investors in Ireland, the hedge fund management sector has been slow to take off here.
Efforts from promotional bodies such as the IDA to establish Dublin as the "Connecticut of Europe", which has leveraged its relative proximity to New York to develop as one of the world's largest hedge fund management clusters, have had little success.
There appears to be a reluctance by traditional asset managers to move away from the centres of London and New York.
In 2000, Abbey Capital, an Irish-owned alternative investment manager, was set up by a founder of Allied Irish Capital Management, Tony Gannon, and has had considerable success, with $1 billion in assets in 2007.
Financier Dermot Desmond has his own hedge fund operation, IIU Asset Strategies, headed up by Paul O'Reilly, which runs a number of funds, including the IIU Convertible Arbitrage Fund, and has over $146 million (€93 million) in assets under management.
Another Dublin-based operation is Appleton Capital Management, which was set up in 1995. In 2003, David Walsh and Jeremy O'Friel led a management buy-out of the firm from the South African Appleton Group.
Perhaps the largest alternatives fund manager is Italian fund manager Pioneer Investments, which established its alternatives division in Dublin in 1999. Today, it manages funds in excess of €6 billion from Dublin.
As part of their wealth management capabilities, many Irish stockbrokers and private banks offer proprietary hedge funds to their clients.
While Ireland may not have been successful in attracting fund managers, it has developed a niche as a centre of excellence for hedge fund servicing, and ranks as the world's largest hedge fund centre, servicing a third of global hedge fund assets. Most of the top global hedge fund servicers such as Citco, Citi and IFS all have Irish operations.
