Last year might not have been a memorable one for hedge funds, but there is still a place for the alternative investment vehicles in your portfolio, a panel of industry professionals claimed yesterday. The Credit Suisse First Boston/Tremont Hedge Fund Index made only a 3.04 per cent gain last year, but Sun Hung Kai Fund Management chief executive Christophe Lee said that significant outperformance was evident beneath the top-line number. He noted that funds with a dedicated short bias, for example, returned more than 18 per cent last year. 'Even though they haven't had the performance that they are used to in a good year [hedge funds] are nonetheless able to outperform any other benchmarks that are available,' Mr Lee told an American Chamber of Commerce luncheon. He added that the Hang Seng Index fell 18.2 per cent last year, while the S&P 500 lost 22.1 per cent. Hedge funds are alternative investment products allowing managers a greater degree of flexibility in strategy by allowing them to take short, as well as long positions. While there are an estimated five to six thousand hedge funds in operation globally, with between US$500 and US$600 billion in assets under management, only three hedge fund products have been launched for Hong Kong retail investors since the Securities and Futures Commission authorised their sale in November. The panellists agreed that a diversified investment strategy, through a fund of hedge funds, was the best approach for individual investors, especially for those new to the sector, because of the lower barriers to entry. The SEC requires a minimum of US$50,000 to invest in a single managed hedge fund, while a fund of funds requires only US$10,000, SEC rules state. As well as being able to identify the best of often complex investment strategies, UBS Global Asset Management managing director Roger Tallboys said that diversification would also help minimise the risk of the fund failing. 'Unfortunately hedge funds do sometimes close for poor performance. Investors should choose an organisation which has the resources to at least try to weed out the more risky and uncertain ones,' he said.