Hedge funds boost bottom line for managers-study

Date: Thursday, September 13, 2007
Author: Reuters.com

BOSTON, Sept 12 (Reuters) - Hedge funds are the new "must-have" products for all types of asset managers who rely on them to boost their bottom line, according to a study conducted by consulting firm McKinsey and Institutional Investor's U.S. Institute and released on Wednesday.

Two-thirds of all traditional asset managers, who until recently offered only funds that would buy and hold securities to their institutional clients, now offer alternative products, in the form of hedge funds, the study found.

Indeed these managers are now relying on hedge funds to earn them a lot of money. The study found that more than one-third of these firms' institutional revenues come for alternative products.

Hedge funds differ from mutual funds in that they can sell stocks short and essentially bet that a stock price will fall. They also charge a performance fee on top of the management that traditional managers also charge.

"Just five years ago that proportion would have been close to nil," the study found.

Because gains and losses can add up quickly, they have largely remained off limits for retail investors even as they have become very popular with institutional investors like pension funds.