THE outlook for returns among hedge funds is optimistic, says Man Group chief executive Peter Clarke, thanks to a renewed backdrop for 'alpha' trades.

'As the stimulus that governments and banks put in begins to be withdrawn, we'll see more dispersion trades emerging, (as markets discern) which companies are good and bad, and which economies are prospering.

'There are more opportunities in that environment to see the landscape of winners and losers,' he says.

Competition for excess returns or alpha has also thinned as investment banks wind up their proprietary trading activities due to regulatory and balance sheet issues.

Man Group, listed on the London exchange, had funds under management of US$42 billion as at end- December 2009. At the quarter ending in December, net fund outflows had begun to turn.

It gained, for instance, a significant institutional pension fund client who is expected to invest US$1 billion over three years.

Asian private investors are a major market, accounting for more than half of Man's private investor assets, which stood at about US$28.7 billion at end-December. Of that, some US$15.9 billion was in guaranteed products.

'After a very strong rally in equities, an investor who may have equities, cash and bonds in his portfolio is perhaps a little worried about the downside risk for equities now. They worry about the bond portfolio with the prospect of increasing rates, and there is no yield on cash.

'The backdrop for allocators and private individuals is to look to diversify their asset stream . . . People are looking for safety and liquidity as much as they look for return.'

2009 marked the best year in terms of hedge funds' performance in a decade, marking the strongest rebound as well since the Credit Suisse/Tremont Hedge Fund Index was incepted in 1994.

In its 2009 review, CS/Tremont noted that 83 per cent of all funds posted positive performance and the industry saw net inflows of US$12 billion in the fourth quarter. Redemptions, however, came to US$74 billion during the year.

Man was among the most resilient among fund of hedge fund managers, thanks to its size and cash reserve. This was despite an exposure to Madoff of US$360 million.

Despite its underlying assets' illiquidity during the crisis, Man maintained its liquidity terms and did not 'gate' or restrict redemptions.

'We had kept to liquid strategies because we offered private investors monthly liquidity. We were very disciplined about that. We have a balance sheet at Man and we did take on some illiquid content on our balance sheet to provide liquidity to investors. Very few hedge funds had capital . . . so we were pretty unique,' says Mr Clarke.

In its review of fiscal year 2009, Man said it ended the year with an increased net cash balance of US$1.7 billion.

Its regulatory capital surplus rose to US$1.7 billion and its US$2.4 billion in standby committed banking facility was unused.

Over the last few months, concern over liquidity and transparency has spurred demand for managed accounts among both institutions and individuals. Managed accounts segregate clients' assets.

The minimum to start an account, however, may be around US$25 million for each underlying hedge fund manager, making it less accessible for individuals.

Still, Man offers a pooled managed account platform that co-mingles investors' monies.

Managed account allocations have doubled over the last 12 months, with a total of US$8 billion in assets.

Demand is also rising for onshore products, which are seen to be more regulated. Man has offices in Taiwan, Hong Kong and Korea.