Where is the “Smart Money” Going?

How to effectively invest one’s hard-earned money is a question faced by many. When investors feel uncertain about where they ought to put their money, it may prove …

How to effectively invest one’s hard-earned money is a question faced by many. When investors feel uncertain about where they ought to put their money, it may prove helpful to take a look at where the “smart” money is going. High-profile individuals, hedge funds and institutional investors can provide regular investors with some much-needed direction. While no one can predict exactly what will happen in any market, these professionals may nudge investors in the right direction.

The 2007/2008 Russell Investments Survey of Alternative Investing conducted 326 surveys of institutional investors during the first half of 2007 and represented only organizations that use at least one form of alternative investment. The survey primarily focused on the relative popularity of three categories of alternative investments: private equity, real estate and hedge funds.

Real estate was the most widely used alternative investment category in North America, with 61 percent of respondents reporting investments. 57 percent of North American investors surveyed invested in private equity and 32 percent invested in hedge funds. Despite being the least widely used alternative investment category, hedge funds are growing in popularity; investments had increased $15 billion since the 2005/2006 survey. Investments in real estate and private equity had declined since the 2005/2006 survey.

Investing in foreign countries and currencies also seems to be gaining popularity as the domestic market struggles to remain afloat. Investing in the foreign exchange market can provide investors with some much-needed diversification.

“American investors with limited overseas exposure and far too much exposure to the U.S. economy and the value of the dollar should at least consider the changing landscape and, perhaps, broaden their horizons,” Richard Olsen, founder of Olsen Limited, a Zurich-based e-finance technology and service provider, and one of the founders of OANDA FX Trade, a retail foreign exchange dealer, said. Many countries may provide excellent opportunities for diversifying out of dollar-denominated assets.

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The recently-launched Cable Forex Fund, under the direction of Greg Cotter, a former chief trader at the Société Générale, invests in Group of Eight (G8) currencies—Canada, France, Germany, Italy, Japan, Russia, the United Kingdom and the United States—plus the Australian and New Zealand dollars. Energy producing countries may also be poised to do well.

“The energy producing countries that can benefit from rising energy prices of oil, uranium, coal [and] natural gas should do well and have been quite popular among our clients,” Chuck Butler, president of the EverBank World Markets, said.

Asian countries seem to be of particular interest to investors. The Inrev/Area 2007 Investment Intentions Asia Survey interviewed fund managers, institutional investors and fund of funds managers based in Europe, the U.S. and Asia, and results indicated that investors are turning to Asian markets—particularly real estate—in increasing numbers.

“Overall [investors] expect the effects of the credit crunch to be less [in Asia] than in Europe or the U.S. Some respondents believe the financial crisis might even turn out to be positive for the region, if more capital that was originally allocated to other markets is diverted toward Asian real estate,” according to HedgeWeek, an online hedge fund news source. Among the investors surveyed, Japanese offices were the most popular Asian real estate investment and Chinese residential real estate was the second most popular.

At a press conference held May 4 by Warren Buffett—CEO of Berkshire Hathaway, Inc., a highly successful investor and the second wealthiest man in the world after Bill Gates—and Charlie Munger—vice chairman of Berkshire Hathaway, Inc.—the two men stated that Korea is a promising investment option as well.

“Korea represents sound value,” Munger said.

Korea has one of the better markets in the world, according to Buffett. “If [an investor] had $1 million, it would be easier to go through a manual of Korean stocks than to select a few good American banks,” he said. The strength of Korean stocks may indicate an overall strength in the country’s economy that could prove beneficial for investors interested in putting their money overseas.

Actis, a leading private equity investor in emerging markets, recently announced its first foray into the Indian market. The company will be investing in a joint venture company with a Bangalore, India-based company known as the Vaishnavi Group. The investment totals $25 million, $7.5 million of which will go towards constructing a residential and retail development in Bangalore, according to a June 8 Actis press release.

Some Asian markets, namely China and India, may be on the brink of a housing bubble. Investors should take this into consideration when looking into potential investments in these countries.

Online publications such as HedgeWeek, HedgeWorld and FINalternatives.com can provide interested investors with up-to-date information on the investment activities of hedge funds and institutional investors.

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