Investors keep hedge funds despite two big losers

GENEVA (Reuters) - Private bankers say clients remain sanguine about the hedge fund industry in spite of billions of dollars in losses reported by two top hedge funds in the past month.

At the Reuters Wealth Management Summit in Geneva, top private banking executives from HSBC Holding Plc (HSBA.L), Credit Suisse Group (CSGN.VX) and Barclays Plc (BARC.L) said they had not advised private clients to invest in the Amaranth or Vega Select hedge funds.

Greenwich, Connecticut-based Amaranth Advisors LLC, a multi-strategy hedge fund which in late August had assets of $9 billion, lost a reported $6 billion in less than two weeks after leveraged natural gas positions went badly wrong.

Europe's Vega Select, once an $11 billion fund, is said by clients to have shed between 10 percent and 20 percent in September, adding to a loss of 9.6 percent in August after finding itself on the wrong side of an interest rate trade after failing to anticipate a rally in bonds.

The private bankers said their due diligence practices help them identify and, where necessary, avoid high-risk funds.

Christopher Meares, chief executive at HSBC Private Bank (UK, Channel Islands & Luxembourg), said his bank's discretionary mandates had not invested in either fund.

While some private clients have lost money in Amaranth or Vega Select, these investments were not made on the advice of his bank, he said.

Thomas Kalaris, CEO of Barclays Wealth Management, said clients had not been hit by the blow up. When he met with a group of high-net-worth clients on September 28, there was no change in their attitude toward hedge funds in spite of the two high-profile collapses, he said.

"It is not surprising to see the occasional hedge fund blow up, with more than $1 trillion invested in the space."

Arthur Vayloyan, head of private banking investment services and products at Credit Suisse, also said his clients had by and large avoided the fallout from the two funds.

Credit Suisse is not discouraged about investing in hedge funds following the events at Amaranth and Vega, he said. Indeed the group, which has $32 billion invested in hedge funds, is encouraging clients looking for absolute returns to maintain or increase allocations to the asset class.

He did, however, indicate that the hedge fund industry could be more transparent in reporting its positions.