Mutual Funds’ Appeal Begins to Trump Hedge Funds’

There was a time that the highflying world of hedge fund managers appeared to stratospherically surpass that of mutual fund managers. After all, some of the top hedge fund managers have averaged annual salaries of $250 million in recent years, with $1 billion paydays not uncommon for top stars.

That appears to be changing, the Stamford Advocate reports. In light of the tremendous, relentless challenges of the financial crisis, running a mutual fund appears to be a smarter, surer career move than being a hotshot hedge fund manager.

At a recent well-attended seminar, “How to Start a Mutual Fund” sponsored by the Stamford CFA Society, speaker Thomas Kirchner of Pennsylvania Avenue Funds said that starting up a mutual fund is easier and less expensive than running a hedge fund. And while they are regulated, unlike hedge funds, the manager can at least choose and control the initial board.

That said, funds must obtain approval from the Securities and Exchange Commission and register with the Financial Industry Regulatory Authority, which means approval could take up to three years and the fund must amass at least $10 million in assets under management. “If your burn rate is too high, you’ll never get there,” Kirchner warned. “Longevity is the key driver for success in our industry.”

As well, Series 6, 7 or 63 exams are needed to sell mutual funds, and marketing them “gets very complicated [as] state regulations come into play,” Kirchner added.

However, investment bankers and other financial executives who have lost their jobs due to the financial crisis “might consider hanging out [their] own [mutual fund] shingle,” said Walter Dolde, a finance professor at the University of Connecticut.