Investors of all stripes, burned by severe losses in even the most diversified investment portfolios, have been craving downside protection as they wade back into the markets. Sensing a business opportunity, money management firms have been all too happy to oblige. The net result: Twenty-four new hedge fund–like mutual funds have been launched over the past 18 months.
Many of the new offerings come from traditional mutual fund players like Putnam Investments, Rydex|SGI and Eaton Vance Corp. But a surprising number have also been launched by firms better known for their institutional and hedge fund businesses. In January, for example, AQR Capital Management, which runs $22.5 billion primarily for institutions, introduced a no-load mutual fund called AQR Diversified Arbitrage Fund. In April, Permal Group, a large fund-of-hedge-funds firm and an affiliate of Legg Mason, launched the Legg Mason Partners Permal Tactical Allocation fund. And in June hedge fund manager Bull Path Capital Management converted one of its long-short funds into a mutual fund.
The launches may be a response to new demand, but they also speak volumes about the state of the hedge fund industry, says Nadia Papagiannis, a hedge fund analyst at Morningstar in Chicago. With the HFRI composite index down 19.03 percent in 2008 and this year’s gain of 13.95 ....