A boon for hedge funds

Bloomberg News
September 6, 2005

Lured by rising markets in Germany and expectations of economic reform after national elections this month, hedge funds now own almost a quarter of German company shares, according to research from Lehman Brothers. "My sense is that it's somewhere between 20 and 25 percent," said Christian Meissner, co-leader of investment banking at Lehman Brothers in Germany. He said that in the last year the figure had probably gained "around 5 percentage points."

Determining the share of the German market that is owned by hedge funds is difficult because much of the data are not published in Europe, Meissner said. Lehman based its estimate on examinations of trading flows and discussions with companies.

German companies are increasingly feeling the influence of shareholders like hedge funds. Werner Seifert was removed as chief executive of Deutsche Börse in May in part because of a campaign by hedge funds against his plan to buy the London Stock Exchange. And Fresenius Medical Care, a provider of dialysis products, last month amended a plan to convert preferred shares into common stock after Citadel Equity Fund and Och-Ziff Capital Management lobbied for the change.

But the growing involvement of hedge funds has provoked controversy in Germany, where some politicians have called short-term investors "locusts." "Hedge funds owning equities and engaging in shareholder activism is a good thing because they are driven by shareholder profit maximization," said Narayan Naik, director of the Center for Hedge Fund Research and Education at London Business School.

Jack Inglis, deputy head of European prime brokerage at Morgan Stanley in London, said rising markets had attracted hedge funds to Germany. "Hedge funds are committing more capital to equity markets in general as markets become more favorable," he said. "And Germany has been particularly favorable."

Labels: Morgan Stanley