Finance expert defends hedge fund business

(CNS): Despite the bad press surrounding the hedge fund business these controversial funds play an important and useful role in society according to one finance expert. While the media may prefer writing about the salaries earned by hedge fund managers, Edward H. Dougherty, Partner at Deloitte & Touche a speaker at this week’s GAIM Ops Cayman conference, said it was about time the public was properly informed about the positive side of the industry. Dougherty was speaking to one of the biggest ever attendances of the conference, now in its sixth year currently being held at The Ritz-Carlton, Grand Cayman when he gave the audience his top ten reasons why hedge funds were good for society.

Number ten on his list was that hedge funds had an incredibly charitable nature, noting that the top 25 US hedge funds had given US$6.16 billion to charity in 2010. He also commented that hedge fund managers themselves were tax payers and that the top 25 hedge fund managers of 2010 who earned a total of US$22 billion between them were liable to pay US$3.3 billion in taxes.
Dougherty also said that the industry was responsible for creating a good many jobs in the US and worldwide as well. He stated that out of the 300,000 or so jobs created by hedge funds, 240,000 were in North America; 50,000 were in Europe and 10,000 in Asia. He also spoke to the global nature of the industry and the fact that it facilitated innovation and increased market efficiencies by providing capital where it had never before been available.

“Hedge funds have made a positive contribution to the global economy by giving access to investors to investment ideas across the globe,” he said. Hedge funds also provided liquidity to markets, even when liquidity dried up during the asset crisis of 2008. “Hedge funds became lenders – they were key liquidity providers throughout the asset crisis,” he confirmed.

According to Dougherty, the number one reason that hedge funds should be viewed with positivity among the public in general was the fact that they were key in solving what he termed “the pension problem”.

He explained that in the United States since the year 2000, the gap between what the State owed employees in pensions and its ability to pay that figure had widened considerably to around US$620 billion. At the moment, pension funds were only investing about 4 to 6% of their allocations in hedge funds, yet if they were to increase their allocation to 15% of their allocation the huge gap would shrink by around US$114 billion.

“That still leaves a gap of around US$500 billion, but it shows that hedge funds do have an important role to play,” he said.

Dougherty went on to quote Joseph Dear, the Chief Investment Officer with the California Public Employees Retirement System (CalPERS), a man he said “got it” when it comes to investing in hedge funds, who supported investing in such entities. Hedge fund investments were a critically important component of a pension fund’s diversified investment strategy, Dougherty said.

“President Obama recently spoke to the US Chamber of Commerce about the need for business to respond to the US economic situation. Hedge funds have been answering that call instinctively. It’s time to get this better acknowledged.”