The lure of hedge fund rewards is starting to take its toll on traditional mutual fund firms. To stop that from happening, many mutual funds have decided to start up hedge funds themselves, Reuters reports.

The tough thing for the old-school mutual funds is that short-selling, use of derivatives and other key tools are disallowed. Hedge fund managers also receive a greater amount of the profits and higher salaries.

Now, though, companies such as London-based Gartmore, have decided on the "if you can’t beat ‘em, join ‘em," philosophy, and many analysts think it’s a winning idea.

"If I were a mutual fund I would be worried about losing good managers," said the hedge fund adviser Luc Estenne of Geneva-based Partners Advisers. "Gartmore is a model which will become more popular as a way to diversify into alternative investments."

Others argue that hedge funds are not all they are cracked up to be, citing evidence that 600 of the 800 hedge funds introduced in 2002 have already disappeared. Even Estenne added that 90% of hedge funds are not worth investing in.

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