Hedge funds pin hopes on French revolution - Bernheim, Dreyfus ...

Analysis: <strong>Hedge</strong> <strong>funds</strong> <strong>pin</strong> <strong>hopes</strong> on French
revolution
(Reuters) - France's small band of hedge fund managers, long dismissed
as risk-addicted buccaneers in their home market, are betting on a
renaissance as investors burned by stocks and sovereign debt look
elsewhere for returns.
It is a Europe-wide trend but one that matters in France, where big investors such as insurers
and retirement <strong>funds</strong> - holding 2 trillion euros ($2.5 trillion) assets - are more risk-averse
and put less into hedge <strong>funds</strong> than peers abroad.
The optimism of some hedge fund managers is even trum<strong>pin</strong>g fears for the future of French
finance under Socialist President Francois Hollande, who has pledged to tax top earners
more and crack down on risky trading.
"More French assets are going to go to the hedge <strong>funds</strong>. It is inevitable," said Amit Shabi, cofounder
of Bernheim Dreyfus, a fund that makes bets on whether mergers succeed or fail.
"The only question is how long it takes. It may be one year or five."
Although the 2008 crisis and ensuing euro zone debt turmoil have left their share of hedge
fund victims by the wayside, Shabi and co-founder Lionel Melka said that in a world of rockbottom
interest rates, rough stock markets and a flight to sovereign safety, hedge <strong>funds</strong>' riskreturn
image was improving.
Other "hedgies" agree, though they acknowledge there was a wall to climb given investors'
lingering risk aversion and as insurers like AXA and CNP Assurances struggle with tougher
capital requirements under "Solvency II".
"There is huge potential, especially if (state bank) Caisse des Depots and if insurance
companies invest more," said Guillaume Rambourg, former star trader at London-based
Gartmore who set up his Verrazzano Capital fund in Paris last year. The Caisse manages
295.1 billion euros in state-guaranteed savings.
"But it is going to take time. <strong>Hedge</strong> <strong>funds</strong> are still seen as speculators. It could take three
months or three years."
SIGNS OF APPETITE
There are already signs of increased investor appetite.

Some 42 percent of French insurers say Solvency II will likely lead to an increase in their
hedge fund holdings, with 5 percent saying the opposite, according to a November survey by
the Economist Intelligence Unit for BlackRock.
It is a more favorable reading than for Britain and Switzerland, where closer to a third of
respondents saw a likely rise in hedge fund holdings and 5-6 percent forecast a cut.
And it underlines the catch-up potential of France, where hedge fund managers have 3.7
percent of global assets under management, compared with 4.9 percent in Switzerland and
18.3 percent in Britain, according to data from research firm Mathema.
"There is a need for an alternative source of returns," said Alexander de Bruin, senior analyst
at Darius Capital Partners.
The flipside is that French hedgies, despite reporting encouraging meetings with investors,
are still having to work hard to turn good intentions into cash.
Insurer AXA has "no plans" yet to significantly ramp up its 1 percent exposure to hedge
<strong>funds</strong>, a spokesman said, while CNP declined to comment.
To overcome what some see as a lack of understanding about hedge fund strategies and an
absence of advice about where to invest, hedge <strong>funds</strong> are promoting less opaque products
under the Europe-wide "UCITS" label, which enforces transparency and the ability for
investors to withdraw <strong>funds</strong> rapidly.
"We should see the emergence of very big UCITS <strong>funds</strong>...Especially after the 2008-2009
crisis when some investors in (non-UCITS) offshore <strong>funds</strong> found their assets blocked," said
Fabrice Seiman, head of Lutetia Capital.
NOUVEAU MAYFAIR
Some of this optimism is also being backed by measures to promote Paris as a place to do
business: Finance lobby Europlace is awarding seed capital to hedge <strong>funds</strong> like Bernheim
Dreyfus.
Efforts by French regulators to attract <strong>funds</strong> to Paris have also made it cheaper and quicker to
set up a fund in the French capital than across the Channel in Britain, some fund managers
say.
But even if Paris's hedge-fund ranks are expected to swell as former traders from banks like
Societe Generale and BNP Paribas set up their own <strong>funds</strong> in the wake of staff cuts and propdesk
closures, few expect the city ever to match better-known hedge fund hubs like Mayfair in
London.
"There is a lack of access to an international investment base," said London-based hedge fund
advisor Jonathan Aiach, adding that Paris also had fewer types of <strong>funds</strong> than in London.
All of which means even the most bullish in Paris believe that regular Eurostar trips will
always be necessary to raise <strong>funds</strong> from abroad, regardless of how domestic appetite changes.

"There is less competition here than in London and there is support on hand to grow, but we
will still have to count on investors abroad as well as the French," said Fabrice Dumonteil,
managing director of Eiffel Investment Group. ($1 = 0.8130 euro)