Hedge fund clouds gather

Overseas shares were out of fashion, thanks to weak stockmarkets and a stronger New Zealand dollar. Many Mums and Dads were left wondering why they held these "growth assets" if they didn't produce any growth, and no income either. The answer was simple: switch to hedge funds.

According to their promoters, hedge funds offered something close to financial nirvana: high returns, low risk and lots of fees payable to all concerned.

A big part of hedge funds' appeal was that they provided a ray of hope to investors who expected a continuation of the high returns enjoyed in the 1980s and '90s, and who were loath to accept that they had entered an era of low returns.

Financial planners and fund managers probably regarded the timely manifestation of the hedge fund phenomenon as something of a miracle. It arrived at a time when fees on other products were under pressure and many retail investors were losing faith, not to mention money, in international shares.

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