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Do Mutual Funds Take a Back Seat to Hedge Funds?

Date: Monday, July 12, 2004

The NY Times writes regulators worry that portfolio managers who run mutual funds and hedge funds may steer their best ideas to the hedge funds to bolster profits (because of the performance fee). "If you get access to a hot I.P.O., there's a built-in incentive to put that juicy investment in the hedge fund portfolio, rather than the mutual fund," said Cynthia M. Fornelli, deputy director of the S.E.C.'s investment management division. Some companies, like Fidelity Investments, are staying out of the hedge fund business. But many mutual fund companies continue to run hedge funds despite the current scrutiny. These include Alliance, American Express, BlackRock, Gabelli Asset Management, Invesco, Royce & Associates and Wellington Management. Executives at many of these companies said they needed to offer hedge funds in order to recruit top portfolio managers. The article continues covering asset managers who shut their hedge fund operation to eliminate any perception of a conflict of interest.