As planners increase the allocation to alternatives in their clients’ portfolios, the hedge fund industry continues to find ways to bring its once-rarefied services to the retail investor.
One company at the center of this change is Hatteras Funds of Raleigh, N.C., which has launched a daily, liquid hedge fund for investors of any net worth profile.
“Hedge funds have been dictating pricing to the public,” says Brian Jacobs, CEO at Hatteras. “That is about to change.”
Unlike most hedge funds, Hatteras’ new fund of funds permits investors to trade in and out at will, as if it were any ETF or mutual fund, Jacobs says. In fact, it is also a mutual fund.
“The idea is very simply that we could hire great hedge fund managers to run a portfolio for us inside a daily, open, liquid mutual fund,” he explains. “That way you are getting a hedged approach to stocks and bonds. And (investors) don’t have to have a certain net worth to get into it.”
Another benefit, he points out, is that the fund eliminates the “Madoff risk” — the risk of fictitious statements — by having all the assets in custody at an outside bank, J.P. Morgan.
Contrary to their reputation for mind-boggling complexity and exoticism, Jacobs says hedge funds were originally intended simply – as their name would suggest – to “hedge” the market.
“It’s all about risk-adjusted return,” he explains. “These guys go long and short. We give people access to managers with tactics and skills that have historically not been in the mutual fund world.”
Jacobs predicts there will be an increasing convergence between the mutual fund and hedge fund worlds as other companies seek to offer hedge fund strategies to mass-market investors.
“It’s probably going to be one of the largest shakeouts in the asset management industry,” he says. “And it’s underway now. There is a lot of M&A. I get calls on this every day."