Continuing Bear Markets are contributing to the growth in alternative funds on the world investment stage, according to investment experts at the Globalisation of Mutual Funds conference at Fairmont Southampton this week.

It used to be so simple....a mutual fund made up of a diverse range of shares in different corporate stocks offered growth and spread. But last year's dismal equity markets led many investors to reconsider keeping their money in equity based mutual funds.

Diana Mackay is a managing director of FERI Fund Market Information Ltd and heads up their joint venture which analyses how European funds are performing.

She says data from sales volumes in Europe indicate that investors were spooked by the dismal equity markets last year and many moved their money into lower risk investments such as money market funds.

Lack of appetite for risk among some sectors also led to the growth of guaranteed funds, which offer a guaranteed return and low interest rates over a fixed term. "They've been very successful in some countries, but not all. It's an easy sell at the moment," says Ms Mackay, adding that guaranteed funds can be "very opaque - you don't know what you're actually paying for".

The main trouble with all these conservative options is that the return on investment is not good.

"Europe has done very badly on asset growth, on the whole, assets have declined 10 percent, while in the US, assets declined by only about 2.5 per cent," says Ms Mackay.

Consequently, the talk at the conference this year is all about "alternative funds", so-called "hedge funds" which offer a better return on investment.

A few years ago, the phrase "hedge fund" was barely mentioned at this conference, according to one of the organisers, Peter Rodger, but this year they feature in one of the breakfast discussion groups: "Issues for "regulated" Hedge Funds

It seems a contradiction, that during a time when many are looking for the safe option, others are looking to get into the complex, unregulated and non-transparent hedge fund sector. Even in current conditions there remain middle to high income net worth individuals who do not want to put their money in low growth funds and are prepared to take more risk. For them, alternative funds look very attractive.

Stefan Bichsel of Robeco, a leading European fund complex with over 160 funds, says that his company is increasingly promoting alternative funds, or funds of hedge funds. As at year-end 2002, Robeco's alternative assets under management amounted to EUR 5.4 billion, an increase of 17 percent compared to year-end 2001 (EUR 4.6 billion).

Mr. Bichsel says that hedge funds offer a return on investment of generally between 6 -10 percent and in many instances even offer a stable element to a portfolio. "Hedge Funds improve the risk profile and return. That's the charm of these kinds of products," says Mr. Bichsel.

Mr. Bichsel is one of relatively few investment managers attending the conference this year. The majority of delegates appear to be lawyers and back office administration companies. "It's all sharks and no tuna," comments one service provider.

Perhaps this is another sign of the times. Diana Mackay says that this once "well-heeled industry" has gone through a lot of trimming down in the past few months. "There's a lot of pain to come."