TOKYO -- Hedge funds around the globe are boosting their operations as they continue to attract investors tired of ultralow interest rates and eager for higher returns.
The balance of assets hedge funds manage jumped 10.5% on the year to an estimated all-time high of $2.1 trillion as of the end of May, according to Eurekahedge, a Singapore-based company that tracks these funds. This marks a sharp recovery from the less than $1.3 trillion yen recorded at one point in 2009 following the global financial crisis that began the previous year.
Investment by pension funds has grown in particular. "Corporate pension plans in Japan and the U.S. that are seeking stronger returns are making investments in hedge funds," says Akihito Kusumoto, representative director at the Japanese office of K2 Advisors.
This trend follows concerted monetary easing in major economies. In the wake of the financial crisis, the central banks of Japan, the U.S. and Europe introduced such easing policies as low-interest rates and asset-purchasing programs to flood the market with liquidity, keeping interest rates at rock bottom.
The yield on 10-year U.S. Treasurys has been stuck in the mid-2% range, a far cry from around 4% prior to the crisis. Following debt crisis fears, rates in southern European countries such as Spain and Italy have tumbled to historic lows.
These ultralow rates the world over make it difficult for pension funds to secure stable returns solely through such traditional investment vehicles as bonds. As a result, "hedge funds, which guarantee high returns, are looking more attractive," says Katsuyuki Hasegawa at Mizuho Research Institute.