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Bigger May Be Better As Minor HFs Quit


Date: Wednesday, July 9, 2008
Author: Emii.com

Bigger may be better for hedge funds at a time the $2 trillion (1 trillion pound) industry's smaller players face tough choices of either merging or being forced out of business, reports Reuters.

In the first six months of 2008, more than a dozen smaller funds have already agreed to let larger players own a piece of them, and investors and managers expect that pace to quicken.

Man Group, the world's largest publicly traded hedge fund group, has taken stakes in Ore Hill Capital and Nephila Capital, while Goldman Sachs' Petershill unit has taken stakes in Capula Management, Claren Road Asset Management and Trafalgar Asset Managers.

"What we are finding is that managers of varying sizes are either merging with or selling a stake in their businesses to larger institutions," said Ron Geffner, who works with hedge funds as a partner at law firm Sadis & Goldberg. "And in many cases the primary reason is to gain access to better infrastructure and distribution."

While many hedge funds once operated with only a few people out of a basement or garage, bigger investors who have helped double the industry's assets to $2 trillion in the last three years are demanding more for their money.

Risk management, legal departments and top-notch back office operations are must haves for big name investors like the Massachusetts state pension fund, trustees and fund officials said. That fund plans to put more money into hedge funds in the months ahead.

For smaller funds managing only a few million dollars these types of costs can put them out of business very quickly, several small fund managers said.