As we’ve observed many times on these pages, the asset management industry is quickly converging on one business model that includes both alpha and beta – both hedge funds and mutual funds (even ETFs). Last week brought us more evidence of this free-for-all among traditional and long-only managers.
First Putnam Investments announced the launch of its “absolute return” mutual funds. The firm’s CEO issued a huge endorsement for absolute return investing, saying in a statement that:
“Diversification and commitment to absolute-return strategies can be crucial to long-term investment success, and we believe investors will welcome the opportunity to invest in these funds.”
Meanwhile, the hedge fund business – self-proclaimed “absolute return” providers – sure aren’t going to sit idly by and watch as mutual funds eat their lunch. A couple of days later, hedge fund manager AQR announced that it was launching a mutual fund and had plans in the works for two more mutual funds in February. An analyst at Jeffries Putnam Lovell told the Wall Street Journal that:
“Hedge funds are continuing to try and find ways to diversify their business in a fight for survival…”
Anyone who watches ice hockey or American football knows that a lot can happen in the final two minutes of the game when one team is desperate. The trailing team will pull their goalie to add an extra forward or throw successive “Hail Mary” passes into the opposing end-zone. Games can be won and lost during these brief windows. While the distribution reach of a typical mutual fund trumps that of a hedge fund, mutual funds should be a little nervous about their rivals embarking on a “fight for survival”.
According to this piece in the Times, the hedge fund model is also converging with the investment banking model. Investment banks – for those who may not remember – are an old-fashioned business model from a bygone era. The Times quotes one expert at Deloitte who says:
“We will probably see hedge funds becoming more like the investment banks of old, having a number of different trading strategies probably set up in such a way that there are effectively many funds or trading desks within the hedge fund.”
- January turmoil has “sharpened the argument for the convergence of traditional and alternative asset management”: Report
- Start your alpha engines, “the race is on”
- “Convergence” gets another shot in the arm from recent calamities
- Hedge Funds and Mutual Funds: Not such an odd couple – as long as conflicts of interest are managed
- Morningstar’s Deutsch: 130/30 “not monolithic” but does represent a “convergence” in money management