Fund Firms Increasingly Cater to Wealthy

Although mutual funds are supposed to be the investment choice of the masses, many of these companies are increasingly looking to building up their high-net-worth clientele by offering hedge funds and other private investment pools with minimum investments of $1 million, the Boston Business Journal reports.

Firms that have jumped into this game include Fidelity Investments, MFS Investment Management, Wellington Management, Pioneer Investment Management, Putnam Investments, State Street Corp., Eaton Vance and Evergreen Investments.

At Eaton Vance, for instance, 21% of the firm's assets, or $20.9 billion, are in private investments, up 31% from $16 billion at the end of fiscal 2003.

"It's a rarefied world, one where only 'known experts' are invited to play," Lou Harvey, president of Dalbar, told Boston Business Journal.

Many believe it's a bad idea for mutual fund companies to offer private investments, as it might entice them to favor performance in products for wealthy clients at the expense of their lowly mutual fund investors. But the fund companies counter that they run these two lines of business completely separately. 

The news of mutual funds' increasing interest in private investments comes as a result of the new Securities and Exchange Commission rule requiring greater disclosure from hedge funds.

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