When The Hedge Fund Feeling Is Mutual

Date: Friday, November 3, 2006
Author: Dailyii.com

It’s getting a little dicey out there in the mutual fund/hedge fund universe. For a while now, mutual funds have been offering hedge-like products, while some mutual fund managers have been left the sector for the greener pastures of hedge funds. But there’s a third kind of animal out there that’s fired up the old conflict-of-interest debate: mutual fund managers who also serve as hedge fund managers. And that number is growing: from under 60 in 2002 to 112 in 2005 and 124 this year, according to Morningstar. Some big firms such as American Century Investments ban them altogether (though it offers hedge-like funds as a consolation), but a number of high-profile companies such as The Vanguard Group, Pioneer Investment Management, Ameriprise Financial and Gartmore Global Investments have these “side-by-side” management arrangements. On the one hand, reports The Wall Street Journal, allowing MF managers to sell hedge funds assures that mutual fund firms will hold on to their top talent. On the other hand, however, there’s the fear that managers will favor the high-fee-paying hedge fund clients. One way of doing that, says The WSJ, is when a manager sells stock in his hedge fund before that in the mutual fund in the hopes of driving down the price. This current conflict could have been avoided three years ago, when the House of Representatives OK’d legislation that would have prohibited the same person from running both a mutual fund and a hedge fund at the same time, but the measure was shelved.