Mutual funds are making their way back on Wall Street, because hedge funds have not been performing too well lately, and those executives that left their jobs to manage hedge funds are running back to prominent firms, according to The New York Times.
The outcome is a new kind of mutual fund that follows the aggressive leverging technique of hedge funds by borrowing money, making bearish stock bets and taking concentrated positions, according to The NYTimes.
"The ability to generate superior performance does not rest with the hedge fund industry," said Brian S. Posner, a onetime star manager at Fidelity Investments in Boston.
The big size and the resources of a mutual fund are very appetizing to managers of hedge funds, who in recent times have been struggling to attract assets.
"It used to be a one way street with all of the traffic going to hedge funds," said Jeff Garrity, of the recruiting firm Russell Reynolds in Boston "Now for the first time in years we are starting to see movement in both directions."
Fidelity has reportedly filled three hotshot positions with hedge fund veterans.
"For years there was brain drain from Fidelity to hedge funds," said James H. Lowell, editor of The Fidelity Investor, an independent newsletter. "But some of these managers have discovered that being an entrepreneur is not what it is cracked up to be."
Consultants forecast that weak performance will drive other big names from the volatile hedge fund arena. In 2005, hedge fund performance was nothing to brag about, as they were losing money four out of 11 times, and the average fund was outdone by the S&P 500 index. By contrast, mutual fund assets went up 23% in the same time period.