BRITAIN’S status as a major centre for hedge funds was confirmed yesterday when new figures showed that the value of assets invested in City hedge funds leapt more than 25 per cent last year to £370 billion.

The UK was the world’s third-largest asset management centre, across all types of funds, according to research by International Financial Services London (IFSL). It found that the value of funds managed in the City shot up by 7 per cent to £3,450 billion in 2005.

The rise was fuelled by the investment community’s rising interest in hedge funds, the IFSL said. Institutional investors, in particular, increased their exposure to the higher-risk, higher-return funds.

Marko Maslakovich, senior economist at IFSL, said: “The main driver behind the increase was the growing popularity of alternative funds — it has increased significantly in recent years and London is the top centre in Europe for hedge funds.”

Alternative investments, including hedge and property funds, acounted for about £374 billion, or 11 per cent, of the funds under management. This figure takes into account only retail investment in hedge funds, to avoid double-counting of institutional assets.

This is up from £298 billion in alternative funds in 2004, £245 billion in 2003, £204 billion in 2002, £190 billion in 2001 and £173 billion in 2000.

About 15 per cent of the £3,450 billion came from retail funds such as unit trusts, and 8 per cent from the private clients of stockbrokers, banks and fund managers. UK institutional investors, which manage the assets of pension funds, insurance companies and local authorites, provided 66 per cent of the money under management.

The IFSL said that Britain’s strong international reputation as a fund management location had allowed British institutional funds to grow by more than 40 per cent over the past ten years. UK insurance funds nearly doubled to about £902 billion in the same period, while UK pension fund assets were worth £896 billion at the end of last year. The IFSL found that the UK investment market was dominated by three fund managers — Barclays Global Investors, Aviva and HSBC Holdings — accounting for half the pool of assets held by the top 15 managers.

British investors were third behind the United States and Japan as providers of investment capital, with IFSL showing that UK sources contributed 7 per cent of the global amount under management. Britons contributed $4,061 billion (£2,180 billion) to the total pool of assets, compared to $6,153 billion from Japan and $26,489 billion from the US.

ECONOMIC BENEFITS Fund management in the UK economy

Retail funds worth £530 billion

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