Centaurus sees lower hedge fund industry returns

By Laurence Fletcher

LONDON (Reuters) - Hedge fund investors should be prepared for the fact they will not always earn the double-digit returns they have seen in recent years, the head of hedge fund Centaurus Capital told Reuters on Tuesday.

Speaking at the Reuters Hedge Fund & Private Equity Summit in London, Bernard Oppetit, chairman and chief investment officer of Centaurus, said the industry was facing an "important test" and that double digit returns in all market conditions were unrealistic.

His comments come after a tough start to the year for the $2.5 trillion hedge fund industry, which, after returns of 12.56 percent in 2007 and 13.86 percent in 2006, has been hit by volatile markets, investor redemptions and prime brokers paring back leverage.

According to preliminary data from the BarclayHedge Fund Index, the average hedge fund lost 4.4 percent in the first quarter, while other firms measuring hedge fund performance also show falls.

"I think it's probably not realistic for hedge fund investors to expect that their hedge funds will give them double digit returns year after year after year, rain or shine," he said.

"But what is realistic to expect is that a good portfolio of well-chosen hedge funds will preserve capital even in very bad times and make money in good times ... I think overall the hedge fund industry's not doing too too badly, even if the first few months of this year are not very good."

Oppetit said the industry had learned its lesson and was employing less leverage after a number of recent high-profile blow-ups, including London-based Peloton Partners, which last month told investors it was liquidating two funds and closing down after "severe" declines in the net asset value of its asset-backed securities (ABS) fund.

"Certainly a lot of hedge fund investors have been hurt by the few instances of blow-ups that we've seen," he said.

"These blow-ups happen to funds which are using a lot of leverage. We don't. I suppose the lesson has been learned and I doubt today as many people are using as much leverage."

Oppetit said Centaurus took a "very, very conservative stance" and had stopped using leverage in recent months. He also said he expected to deliver positive returns this year for his investors.

(For summit blog: summitnotebook.reuters.com/)

(Editing by Elaine Hardcastle)