Huge growth in alternative investment mutual funds is fueling a big market for subadvisory hires for hedge fund managers.
What's catching the attention of many smaller hedge fund managers, and to a lesser extent big fund complexes, is steady growth of multi- and single-manager hedge fund strategy mutual funds. Assets managed in these funds jumped 54% to $139.3 billion in the year ended Dec. 31 and increased 292% from year-end 2007, according to Morningstar Inc., Chicago.
As hungry as many hedge fund companies are to swell their coffers — 68% of hedge fund managers said increasing assets is their firm's top priority, according to a February InfoVest21 LLC survey — 94% said they don't offer their own hedge fund strategy mutual fund now.
While just 17% of respondents told the New York-based hedge fund researcher they are subadvisers for mutual funds registered under the Investment Company Act of 1940, 27% said they intend to become one in the next 12 months and an additional 11% said it's a possibility.
Hedge fund managers that are willing to adapt their strategies to the more constrained requirements of a mutual fund overwhelmingly prefer the subadvisory route into mutual funds for reasons of efficiency, cost, complexity and compliance, said specialist hedge fund attorney Steven B. Nadel, partner in the New York office of Seward & Kissel LLP.
But many large, institutionally oriented managers aren't entertaining offers by their hedge funds-of-funds investors or mutual fund companies to manage a sleeve of a hedge fund strategy mutual fund that's under construction, said sources.