Hedge funds help investors weather recession

  • 2008-09-18
  • By Matt Withers
TALLINN - With Baltic economies reaching a nadir, many investors have increasingly turned to hedge funds to survive the crisis.
Rothstein Kass 's a U.S.-based firm that works closely with the hedge fund industry 's recently sponsored a poll indicating that investors are looking toward hedge funds as a way to circumvent the effects of economic instability.

"An important part of hedge funds' appeal is their ability to outperform in turbulent or recessionary market conditions. In fact, over 81 percent of principals said that market volatility favors hedge funds over traditional investment vehicles," said Howar Altman, co-managing principal of Rothstein Kass.
These sentiments are not exclusive to U.S. markets and have been echoed in the Baltics. Tex Vertmann, communications mana-ger of the Tallinn Stock Exchange, told The Baltic Times, "hedge funds have generally more freedom to invest in different types of instruments, including options, and thus have better potential to gain during market recession."

Rain Tamm, a managing partner at GILD Bankers, said an economic downturn causes investors to look towards alternative funds, such as hedge funds.
"In corporate finance it means that less favorable economic conditions offer good expansion possibilities for well-capitalized companies and they find excellent targets for takeovers. The wider picture is that more and more investors are looking into hedge funds and other alternative investment classes to protect their returns in turbulent times," said Tamm.

GILD Bankers is the only registered multi-strategy hedge fund in the Baltics, placing the firm at the forefront of investment in New Europe. 
Earlier this month, the company's EEREIF (Eastern Europe Real Estate Investment Fund) Real Estate private equity fund won the 'Best Funds in New Europe' award in a competition run by Business New Europe. EEREIF claimed the award due to its average annual return of 25 percent, exceeding its targeted return of 15-20 percent.

Moreover, GILD Arbitrage, the bank's primary hedge fund, has been producing returns averaging 23 percent since 2001 and is a crucial element in the company's overall strategy.
Consequently GILD Arbitrage currently holds an excellent position in the New Europe investment landscape, as the regional hedge fund market is becoming increasingly lucrative and remains the sole player on the market.
Vertmann said there are several aggressive private equity funds active in the Baltics that are acting in a similar way to hedge funds, however, and that they could be interpreted as competitors in the same market.

"There are many private equity funds active in the Baltic region, many of them have a pretty aggressive strategy, investing in high yield products, unlisted products and so on. It might be that they just do not use the term 'hedge fund' or have a different understanding of this," Vertmann said.  

"It's quite unlikely, indeed, that there is a great business model [hedge funds] abroad, but there is just one collective investment entity in Estonia, the Baltics or even New Europe that has copied that," he said.
Since 1999, the GILD Investment Banking team has advised and successfully completed more than 120 transactions with a combined value exceeding 2.8 billion euros.