Hedge funds are here to stay for the benefit of investors, despite media scrutiny.

Despite being criticised by the media, hedge funds present an attractive value proposition to Australian investors. The asset class has had its worst year ever but still beat global stocks, making a compelling case for the inclusion of hedge funds in client portfolios, Man Investments head of institutional business Urs Alder said recently.

"In strong bull markets, hedge funds will never make as much as equities. The pitch is though, in strong down markets you lose much less money," Alder commented. There is also less volatility with a diversified portfolio of hedge funds.

The top 10 superannuation funds in Australia have $7 billion allocated to hedge funds, and that is poised to increase, he believes.

"In 2001, the average allocation to hedge funds was 2 per cent for institutions. In 2009 it is expected to be close to 9 per cent.”

However, due to some of the recent hedge fund blowups, it is likely super funds will look to allocate to fund-of-hedge-funds products rather than invest in individual hedge funds.

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