Hold

Hold.It’s proving a capital time for CapitaThis year is turning out to a bumper one for contract wins for Capita, the outsourcing specialist. This week, the company announced a deal worth £430m, over 20 years, to provide administration services for The Children’s Mutual, which provides savings services for children.It was the third major contract win in as many months, taking the total value of business won in the first quarter of 2004 to £625m That compares with the £615m won in the whole of 2003. Capita’s record for a year’s contract awards is about £1bn.The company provides “business process outsourcing” (BPO) services, which means everything from admin to information technology, to the private and public sectors. Capita has established itself as the leader in this country, with a 24 per cent market share. Its competitors, such as Accenture and EDS, tend not to be able to provide as wide a range of services.The company’s 2003 results, published in February, were healthy, with margins of 12.3 per cent and turnover growing 20 per cent. Capita does not see a threat from growing evidence of companies outsourcing services to countries such as India, saying it does not compete for contracts that are being tendered mainly on the basis of cutting costs Given the growth prospects, it’s a buy.

The above are a selection of recommendations from the daily Investment Column. For those who follow such things, a steady stream of stories in the past few days underlines how well-developed the coming bubble in hedge funds is threatening to become. As with the dot bubble four years ago, and all the major market bubbles of the past, this one is unfolding before our very eyes – and, for the moment at least, nothing seems to be able to stop it inflating further. Here, taken virtually at random are just some of the telltale stories about hedge funds that I have noticed in the past few days.
1.

The BT pension fund, the biggest in the country, says it is about to authorise investment in hedge funds for the first time, accelerating a growing trend for large investment institutions to branch out into this fashionable new asset class.2. RAB Capital, a hedge fund business, has been brought to the stock market in a deal which originally valued it at £85m, in the process creating profits “on paper” of at least £25m for its two founders. This is the first of many IPOs City investment bankers are hoping to launch at investors in the coming months.3. A hedge fund company is said to have offered the highest rental per square foot for office space ever seen in Berkeley Square, in the heart of Mayfair, the London hedge fund industry’s homeland.4. A former US hedge fund manager is being pursued across Europe by the FBI following disclosure that he abandoned the fund, leaving investors with heavy losses; one of an estimated 25 per cent of recently established funds that go out of business or close down each year (not always in such circumstances).5. A specialist hedge fund publishing company set up by an enterprising journalist just a few years ago has been sold for more than $10m (£5.4m) to a large publishing group.6. Schroders, the quoted fund management company, is said to be close to buying a 10 per cent stake in Thunder Bay Capital management, a specialist hedge fund firm, founded last year by Deutsche Asset Management’s former chief investment officer.7.

The net flow of funds into the hedge fund business in 2003, according to HedgeFund , came to $72bn, bringing the total invested worldwide in hedge funds to roughly $750bn. The quarterly inflow in the last quarter of 2003 was not only the highest ever, but 50 per cent higher than the amount that flowed into hedge funds during the whole of 2002, the previous record year.And so I could go on. Hedge funds, as if you hadn’t heard already, are simply the newest and hottest thing in town. Every bank and fund management group you can think of either has plunged, or is about to plunge, into this business. Demand is soaring and, as always happens in such cases, supply is expanding to meet it as rapidly as investment bankers can make it happen. The Financial Services Authority (FSA) is meanwhile debating exactly how and on what basis hedge funds might safely be offered to ordinary private investors.It is, I think, no accident that this sudden wave of enthusiasm for hedge funds is happening at a time when credit is about as dirt-cheap as it has ever been.