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From Edmund Wandeler, Alphaswiss (edmund.wandeler@alphaswiss.com)
As hedge funds are becoming more and more part of the extended asset allocation, banks and lenders have started to look for solutions to evaluate credit risk connected to these investments.
The recent single digit performance of hedge funds indices started a new trend: external leverage. "It's definitely a trend. People are leveraging up to try for that 15% to 20% return," says Michael Araiz, chief executive of Further Lane Asset Management. Citigroup managing director Kent Lucken agrees, saying more of his private-banking clients are leveraging hedge funds to expand their portfolios. In some cases, he says, partnerships are even putting up their shares to collateralize loans for private planes.
Since many single and multi strategy funds trade in hard to value or illiquid securities, banks find themselves in a difficult spot to use these funds as collateral. Borrowing against hedge funds has grown in popularity among investors and an increasing number of banks are embracing such loans. Large banks often have analysts, as part of their investment teams, to help solve the valuation problem. Research analysts usually cover due diligence and allocate hedge fund lending ratios. Other institutions use companies like AlphaSwiss in Switzerland, to calculate appropriate lending ratios. “We have started to offer the service to external parties, ...................... To view our full article Click here
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