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Hedge Funds Essay

Hedge funds are fast becoming an important business in the United Arab Emirates (UAE) in view of the various investment funds in the Gulf region which have become important sources of capital. A hedge fund according to Alexander Ineichen (2003) “constitutes an investment program whereby the managers or partners seek absolute returns by exploiting investment opportunities while protecting principal from potential financial loss (Ineichen 2003, p. 34).

In the past decades, most hedge funds were in the USA and Europe, but with the founding of the Dubai International Financial Centre (DIFC), it is expected that eventually Dubai will soon rival financial centre in the USA and Europe. The Start of Hedge business in the UAE The start of hedge fund business in the UAE was heralded by the partnership made by Dubai Islamic Bank with two of the biggest names in finance world, the Deutsche Bank and Goldman Sachs Asset Management. The launching of the Sharia-compliant scheme in June 1997 was linked to hedge fund.

Dylan Bowman noted that during this time, a five year scheme using an investment called Capital Protected Notes (CPN) which opens up about two trillion dollars hedge fund industry to Islamic investors. Apparently, the opening of the

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DIFC in 2004 marks the start of hedge funds business in the UAE. How it Grow in the Market? While the hedge funds business is relatively new in the region, hedge funds industry experience impressive growth during the past four years which has made assets under management soared to more than double for that fast several years. In a statement made by Dr.

Christoph Moller, Managing Director for Global Sales and Marketing at man Investments, the assets under management by the industry has soared to US$750 billion in 2003 from US$325 billion in mid-1999. This growth in the market was facilitated by the substantial Gulf assets that have flowed in the region given its potential to deliver very attractive combination of return and risk. According to the report entitled The Qatar 2008, it is the maturing capital market and improving capital regulatory oversight that facilitates the growth of hedge funds in this region.

The report cited Mirbaud Middle East CEO, Gilles Rolet’s statement, “While Middle East capital markets have not yet reached the same level of maturity, they are quickly moving in the right direction” (as cited by Oxford Business Group, p. 81). The report pointed out hedge funds as a natural fit for Qatar and the Gulf because oil profits “have left investors in the region with huge amounts of cash…” (p. 81). What is the benefit of the funds? Hedge funds provide enhanced diversification benefit to hedge funds investors which lead to enhanced return and reduced risk.

But the most important benefits are the access to hedge funds that are unavailable to individual investors. According to Scott Frush (2007), “Funds of funds provide access to a broader range of styles, strategies, and hedge managers. They allow access to a broader spectrum of leading hedge funds that other wise might be unavailable owing to high minimum investment requirements or closure of the fund to new investors due to demand and strong cash inflows (p. 148). Benefits provided by hedge funds however, are usually enjoyed by investors and business people who for some reason could not avail of such benefits individually.

But these benefits are not limited to enhanced return of investment or reduced risk or to access to hedge funds. Frush noted that it also provide the benefits of minimizing the risk associated with investing in one hedge fund or one hedge fund manager (Frush 2007, p. 148). This according to Frush, provides comfort to the investor and “a safeguard to the portfolio in that no single blowup with any hedge fund or hedge fund manager will have severe impact on the portfolio” (p. 148). What is the Current Issue in the Market

The current issue in the market today regarding hedging is the continued growth of hedge funds business through diversification of hedge funds investment. The growth trends in the hedge funds industry is making corporations crumpling to diversify their investment portfolios to keep away from risk. Today, it seems that that the issues relating to hedge funds in the UAE more on positive mode. Except probably of the strong competition as a result of the strong growth, that capacity will be an issue for the hedge fund industry as it could lead to more demand than supply, there are not much issues affecting the industry.

What is Happening on the Market The hedge funds industry found a significant share in the UAE market. The growth of hedge funds business has lead to an in increasing diversity in the hedge funds industry. Today, the growing trend of the hedging industry is creating new markets in the UAE which are in turn creating a more sophisticated hedging industry. With new markets and innovations opens up, hedge funds industry is no doubt providing the vehicle of strong growth in the Middle East particularly in the United Arab Emirates. In his statements before the Hedge Funds World Middle East Conference in Dubai, Dr.

Christoph Moller stated, “The hedge fund industry is still growing and is in very healthy shape…” (Moller). Reference Bowman, D. (2007) Hedge Fund Market opens to Islamic Investors http://www. arabianbusiness. com/14261 Ineichen, A. M. (2003) Absolute Returns USA: John Wiley & Sons, Inc. Frush, S. (2007) Hedge Funds Demystified USA: McGraw-hill Professional Moller, C. Hedge fund Industry Set for Strong Growth United Arab Emirates Feb. 24, 2004 http://www. ameinfo. com/35281. html “Oxford Business Group” (2008) The Report Qatar 2008

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