Cautious Welcome for Hedge Fund Investment from CFDG

26th July 2002

The Charity Finance Directors' Group have today responded to the Charity Commission authorisation of a new Common Investment Fund for charities. The new investment fund will invest in a diversified portfolio of around 25 different hedge funds.

CFDG Trustee Alan Sharpe (Finance Director at RSPB) stated: "The fact that the Charity Commission is making available to charities a potentially valuable tool should be welcomed. Hedge funds are often perceived to be inherently high risk instruments and this is not the case; they can be used defensively within a broader portfolio. However CFDG would urge charities to act with extreme caution and to take specialist advice. CFDG would be happy to work with other organisations to help produce guidelines for charities who are considering alternative investments such as hedge funds."

CFDG Director, Shirley Scott added "Hedge funds may be appropriate for a small proportion of a portfolio, especially in periods of high volatility. Hedge funds may be more appropriate for larger charities to improve diversification. A common investment fund under professional management is probably a lower risk opportunity to invest in these funds. Charity trustees must understand the risks associated with any investment, and take proper advice. I will be interested to see what restrictions there are on contributions to the fund."

Other issues which trustees should consider before deciding to invest in hedge funds should be:
· What are the advantages of this new investment and why have you chosen to consider it
· Are you jumping into the new investments just because of poor equity markets, low returns on deposit accounts and poor income from other investments.

 

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