An independent voice

The London Business School's (LBS) Centre for Hedge Fund Research and Education, launched in September last year, is organising its first two-day course on 10 and 11 July, taught by finance professors Narayan Naik and William Fung. The course will be the first of many planned for the hedge fund community.

It will cover the sort of economic conditions that lead to different hedge fund strategies, what makes a successful hedge fund manager, the difficulties encountered when starting a hedge fund and the risks and returns associated with them. It will also contrast hedge funds with mutual funds, comparing managers, strategies and philosophy, and look at the latest academic hedge fund research from the UK, US and Europe.

Professor Narayan Naik, an associate professor in the Faculty of Finance and Accounting, who heads the centre, says: 'It is a very discussion-orientated course. People will bring their own experience to the class.' The course is part of the centre's remit for education, but it also focuses on research into European hedge funds. The centre aims to meet a demand for impartial hedge fund research and education, according to Naik.

'If you go out in the market place there is no proper education available about hedge funds,' he says. 'The kind of things you learn are by attending conferences and the people who present at the conferences are fund managers, so it is not an ideal way of educating yourself from somebody who wants to sell to you ' it is not going to be an unbiased education. That is why there was clearly a perceived need for a centre which does not have any axe to grind, which does not have any products to sell and which is an academic institution putting together a set of facts and making it available to people on an independent basis.'

The centre aims to become the leading academic authority and a focal point for new ideas on hedge funds, with a focus on gaining a better understanding of the strategies employed them. By doing this it will make the workings of hedge funds more transparent, according to Naik. 'If we find good then we say good things about it and if we find not so good we also say so. It is very independent ' that is something we won't compromise,' he says.

The LBS Centre is also planning to develop an investment management evening programme and to run regular hedge fund courses, initially in London and Geneva.

Hedge fund research at LBS began years before the hedge fund centre was launched. Naik developed the idea of the centre after talking to Patrick Fauchier, a fund of hedge funds manager and college alumnus. Fauchier had come from a breakfast meeting with a leading hedge fund manager and was keen to tell Naik about the fund's performance. Naik was impressed, but reserved judgement because he wanted to know first about the fund's risk profile.

'It is classic James Bond: 007 always comes out alive, but 006 has died a few times over. Fauchier was telling me about a guy who had survived and done well, but I didn't know what risks he went through,' says Naik.

Keen to see the bigger picture about hedge funds, Naik and a fellow student carried out research into them from 1998 to 2001.

'After a couple of years of going through that, Patrick Fauchier realised there was much more research that needed to be done compared to what can be supported by just one student ' then the idea of the centre came about,' Naik adds.

Support for the centre was found in the Bank of Bermuda, Deutsche Bank, Merrill Lynch Investment Managers, BNP Paribas, Fauchier Partners and Prudential-Bache International.

The secretive nature of hedge fund managers can make hedge funds difficult to research, according to Naik.

'They don't want other people mimicking their strategy,' he says. 'There are a lot of smart people out there who want to make a lot of money and they are always on the look out for strategies that work and make money and they don't want others to know their secrets or give up their competitive advantage.'

The impact of the centre on the hedge fund world will be to pull back that veil of secrecy, according to Naik. The courses and research material will 'shed light' on hedge funds. There are also plans for a five-day hedge fund course in 2003.

'In the media typically there is a negative view of hedge funds,' he says. 'There are negative aspects to mutual funds as well, that's true in every field of life. We aim to educate people about the good guys, the not-so-good guys and provide an overall picture, then it is up to people whether or not they want to invest.'

For information on courses run by the Centre for Hedge Fund Research and Education email Narayan Naik at [e-mail].