Heightened Global Interest in Alternatives Boosts Canadian Hedge Funds

(July 6, 2011) – Canada’s fledgling $9 billion hedge fund industry is receiving heightened interest from global investors, Dow Jones Newswires has reported.

Riding on the wave of renewed interest in alternatives and benefiting from a booming commodities market, Canadian hedge funds are setting up offshore investment vehicles to capitalize on growing global interest.

“In the past six months, there’re close to a dozen Canadian funds launching offshore products. There were only two to three in each of the previous two years,” Sharon Grosman, president of SGGG Fund Services Inc., a Canadian fund administrator whose clients have $7 billion in alternative assets, said to Dow Jones Newswires.

Offshore investment vehicles permit non-Canadians to invest in Canadian funds without incurring a 25% tax on dividends.

The global hedge fund industry is enjoying a renaissance as asset owners re-embrace the alternatives after the losses surrounding the 2008 market crash. Industry assets reached $2.02 trillion as of March 31, 2011, according to Chicago-based Hedge Fund Research (HFR), aiCIO has reported. The new peak eclipsed the previous second quarter of 2008 record of $1.92 trillion. In a May survey by Preqin, ninety-four percent of institutional investors who used hedge funds said they were likely to increase their commitment over the next three years. The resurgence is due in part to necessity, as asset owners like pension plans turn to hedge funds to shore up funding levels. Sovereign wealth funds have also increased their allocation to hedge funds to boost returns.

Canada’s hedge fund industry often invests in mining and resource businesses, and the recent commodities boom explains much of global investor interest in the country’s sector. The commodities orientation of Canadian hedge funds, however, can be a double-edged sword, Dow Jones has reported. Canadian funds dropped 2.41% in May as the commodities market faltered, a steeper drop than the 1.18% fall recorded by HFR among their global peers.