FUND managers are finding life much harder in current market conditions than during last year's bull market. According to unofficial surveys, the proportion of the local population invested in unit trusts grew from about two per cent three years ago to nearly four per cent late last year. But this is still far lower than the participation level overseas and big redemption figures for March suggest the local figure could have fallen further. Local fund managers say it is difficult to capture investors' interest when markets are quiet or falling. ''People are bored with unit trusts,'' Robert Lloyd George, chairman of Lloyd George Fund Management, said. Hong Kong investors started bailing out of their existing unit trust investments in March. The industry reported net redemptions of US$150 million (about HK$1.15 billion), breaking a two-year run of net sales - the last time there were net redemptions was in the nervous Gulf War atmosphere of May 1992. Mr Lloyd George said the redemptions situation would soon reverse as markets calmed. But investors' nerves had been put on edge by the recent volatility, he said. ''It is very, very hard to persuade individual investors to get into funds now. The general mood is very, very cautious,'' he said. ''People are shell-shocked because a lot of wealthy investors went into these leveraged hedge funds and are showing massive losses . . . the US Treasury Bond is down 32 per cent this year and that is regarded as the most conservative type of investment you can make.'' Bad publicity surrounding the suspension of the HK$1 billion First Investments Leveraged US Government Bond Fund had spread the concern, Mr Lloyd George said. The suspension, which affected 1,000 local investors with assets of about $400 million, followed a 14.3 per cent plunge in the fund's value in March. Mr Lloyd George said the bond market collapse in the US and Europe had been overdone and yields would tend down in the next six months, with some upward movement in stock prices. Rather than risk big losses in leveraged bond plays, Mr Lloyd George advised investors to put about 20 per cent of their funds into gold. Commodity prices had boomed in the past few months as world economies had turned up. This made the Australian stock market a good buy, Mr Lloyd George said. ''I am, basically, still positive about Southeast Asia, including Hong Kong. I have just come back from Thailand and its prospects are very good: eight per cent economic growth; four per cent inflation; and strong construction and banking-sector growth. ''The Singapore dollar is a good investment for conservative people.'' He said India was at the beginning of a 10-to 15-year process of reform and opening up. ''It is coming up with 30 to 40 per cent corporate growth this year and, next year, the highest anywhere in Asia,'' he said. The fund management group also likes other south Asian countries, including Bangladesh, Sri Lanka and Pakistan. Lloyd George Fund Management has more than US$1 billion under management. Uncertain times present many challenges to fund managers, not the least of which is determining how much of their funds to keep in cash. Peter Everington, managing director of Regent Fund Management, said: ''The most basic risk management technique is to go into cash, but it is difficult for fund managers. ''If markets collapse and an individual fund falls, chances are they all fall, so there's an excuse. On the other hand, if markets rise and you are holding cash, the client will be angry. So, for fund managers, there is no incentive to take the risk.' In Regent, we don't take that view.'' Regent's Tiger Fund, which invests in Asia excluding Japan and Australasia, was 50 per cent cash at the beginning of the year, insulating it from much of the region's market weakness in the ensuing months. Mr Everington has gained some notoriety for his bearish forecasts on the Hong Kong stock market. He believes the Hang Seng Index will fall to 6,000 points by the end of this year and 4,000 by the end of next year. But he said Regent was very bullish on other Asian markets, particularly Korea. He is also keen on south Asian markets and Singapore and likes Taiwan. ''Although we are very bearish on Hong Kong, we are not averse to taking short-term positions,'' he said. Mr Everington said he would happily buy local stocks - as soon as the Hang Seng dropped to 7,000.