When Money Can’t Buy…Hedge Funds

As the almighty dollar has been rendered powerless when the wealthy want to buy certain hedge funds, the well-heeled are trying creative ways to get into the sector. Not all of them work, and not everyone on the receiving end of the efforts – namely, the hedge funds – are happy about it. The problem, of course, is that everyone wants to get into the best-performing hedge funds, those run by the likes of Steven Cohen and Paul Tudor Jones, and those are the first to close to investors. “The reality is that it is only a tiny number of hedge funds that are any good and of those an increasing number are either limiting inflows completely or have the luxury of deciding who their investors will be,” Mark James, ABN Amro’s director of alternative investments, told Financial Times. One of the ploys the affluent have been using is to transfer money to the funds’ depositary bank. That move, reports FT, automatically prompts the bank to issue units of the hedge fund willy-nilly. Such an underhanded tactic doesn’t endear investors with their targeted funds. “It is incredibly annoying,” an unnamed HF manager in London explained to FT, noting that uber-wealthy in particularly are “quite flabbergasted,” when their money is thrown back to them. Less devious methods include trying to tap existing investment relationships to get into the closed funds, through funds of hedge funds, for example; or by acquiring them on the secondary market – something hedge funds don’t allow, says FT, because the hedgies want to maintain control over their customers. On the other hand, determined investors could rise above the HF objection to secondary trading by acquiring hedge funds from the nominee bank holding them – an action that can be done without the funds even knowing it.