In Hedge Fund I.P.O.’s, Shades of Pets.com? Not Really

Date: Friday, July 6, 2007
Author: NYTimes.com

In 2005, about the time hedge funds started sprouting like weeds, investors, money managers and the media started to question whether there might be a hedge fund bubble. With hedge funds lining up to go public, the questioning has turned up a notch.

The trends would indicate yes. A flood of money has poured into the sector, which now manages $2 trillion, money is chasing returns with little concern for risk and now a surprising number of hedge funds are rushing to do public offerings.

But, The New York Times’ Jenny Anderson reports, the answer is more likely no.

As with the dot-com bubble, the current hedge fund frenzy has seen small groups of young people make eye-popping sums of money. And now, add to the similarities the move by hedge funds to go public. Och-Ziff Capital Management, a $27 billion hedge fund, filed to go public this week. The Fortress Investment Group and the Blackstone Group, both managers of hedge funds and private equity, went public this year. Dozens more are contemplating the option.

But Och-Ziff is no Pets.com. The latest hedge fund to go public is one of a breed of large, institutional firms that seem to be more focused on gathering assets and delivering stable but unremarkable returns with low volatility — fewer dramatic moves one way or another — than swinging from the chandeliers like George Soros taking on the Bank of England. This strategy seems to make sense, especially considering that the hedge fund party seems set to continue. JPMorgan estimates that defined-benefit plans will move 30 to 50 percent of their assets from traditional stock portfolios to alternatives, including hedge funds.