Hedge funds urged to diversify in case of Brexit

Diversifying hedge funds may reduce the potential impact of Brexit
By Paul Walsh
Hedge fund managers should look at diversifying their investments to avoid the impact of extraordinary factors such as Brexit, according to an industry expert.

Simon Calton, CEO of investment group Rycal suggested how funds had been impacted by dramatic market infrastructure changes.

“If we look at, for example, the performance of some of the better-known funds this year, many have seen unexpected declines based on previously unseen exposure to extraordinary factors.

“Hence, many hedge fund managers, classic CFOs and private investors are deciding that looking further afield, and diversity would appear to be the preferred way to find new opportunities which can offer a return largely unaffected by the decisions made within the European market and also other global factors,” said Calton.

Calton pointed to previous examples of market volatility, similar to the potential of Brexit, including market slowdowns in China, Indian foreign policy as well as financial interventions in Russia as instances where volatility in previously stable areas has caused issues for investors.

Prior to the EU referendum on June 23, there is growing talk of how fund managers and market infrastructures would be impacted.

A survey of 104 pension funds and asset managers by Dutch investment manager NN Investment partners found that 27% of respondents believed that a Brexit was likely.

Equally, an earlier NN survey concluded that 75% of investors believed Brexit would be a negative development while 18% said it would be extremely negative.

The operational implications on financial institutions will ultimately be determined by the precise nature of the Brexit should it materialise, a point made by Paul Ellison, partner at Macfarlanes in London. “We simply do not know how a potential Brexit would pan out, which makes it difficult to speculate on its impact,” said Ellison.