NEW YORK – Sponsors of 401(k) plans and financial planners who otherwise would never consider investing in hedge or arbitrage funds are taking a keener look.

A proliferation of hedge fund of funds registered under the 40 Act as mutual funds has assuaged concerns over transparency, liquidity and minimum investments [see MFMN 9/2/02], according to speakers at Lake Partners’ "Democratization of Hedge Funds" conference here Tuesday afternoon.

As Rick Lake, manager of the LASSO fund, a hedged fund, remarked, Nicholas Biddle, namesake of the Harvard Club room where the meeting was held, would probably turn in his grave at the notion of portfolio managers shorting the market.

But as Robin Jackson, manager of the Schwab Hedged Equity Fund, put it: "Shorting and leveraging are becoming mainstream and making their way to the mutual fund world." Charles Schwab & Co. in fact, hopes to raise $1 billion in the fund, which has received a great deal of interest fund from retail investors, Jackson said.

The money managers also said they did not foresesee an end to the bear market anytime soon [see related story, MFMN, 11/18/02]. David Tice, manager of the Prudent Bear Fund, expects the bear market to continue and the dollar to continue to decline.

"The recession has failed to purge excesses from the market," agreed Rob Greenblatt, manager of a long/short fund at Caldwell & Orkin. "Consumers are overly indebted. Ultimately, there will be a cleansing of this, but we have a long way to go."

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