Hedge investors hunt for next blockbuster strategy

By Laurence Fletcher

LONDON (Reuters) - Top hedge fund bosses will debate whether an upturn in distressed investing or profitable macro strategies offer 2008's blockbuster trade, just as short subprime was in 2007, when they meet in Monaco this week.

GAIM International 2008, held from June 17-19 in the Mediterranean resort for the super-rich, comes as the $2.6 trillion (1.3 trillion pound) industry faces up to poor returns and investor outflows and searches for a follow-up to betting on falling subprime assets last year.

Such a strategy helped hedge fund manager John Paulson, who will deliver his views on the credit crisis to the conference, earn $3.7 billion in 2007, according to Alpha Magazine.

Global macro funds, which retuned 17.36 percent in 2007 and 5.19 percent in the first four months of 2008, according to Credit Suisse/Tremont, have been a popular choice with investors recently as other strategies have struggled.

However, not everyone is convinced such strategies, which bet on the likes of global equity markets, world currencies, sovereign debt and commodities and typically benefit from increased volatility, will continue to deliver.

"The market is saying go long macro, short event-driven. That was last year's trade," Francois Barthelemy, partner and fund manager at F&C Partners.

"Everyone is piling into macro and it's going to be a disaster. No-one knows where the dollar is going to go, where oil is going to go, where interest rates are going to go."

He prefers out-of-favour event-driven strategies, which bet on M&A (merger and acquisition) and other corporate activity, as he believes stocks are cheap and companies' boards are now more open to listening to shareholders.