Sunday, February 29, 2004
Looking for a villain? Look at hedge funds
They may be at core of mutual fund scandals
The mutual fund industry is usually viewed as the main culprit in the scandal New York Attorney General Eliot Spitzer ignited last fall.
Hedge Funds
Open only to wealthy investors
Don't have to register with regulators; no restrictions on how they invest
Never file lists of holdings with regulators; clients may never know what's in the fund
Very restricted in how they can advertise and promote themselves
Typical arrangement is 1%-2% management fee and managers get 20% of profits
About 6,000 to 7,000 hedge funds together manage $600 billion to $650 billion in assets
Ask your neighbors, relatives or the person next to you in line at the grocery store - if they're mad at anyone, it's the mutual funds.
But what about hedge funds?
In many cases, hedge funds - investment partnerships for institutions and wealthy individuals - were pushing for, and profiting from, the bad behavior.
Sure, certain employees at Putnam Investment Management LLC have been accused of making short-term trades in their own accounts, and the two founders of Pilgrim Baxter & Associates Ltd. are alleged to have allowed extensive short-term trades in and out of their PBHG funds.
Closer to home, Richard S. Strong is in negotiations with regulators regarding allegations he made rapid trades in and out of his Strong Capital Management Inc.'s mutual funds.
For the most part, though, the evidence so far suggests hedge funds were at the core of many of the activities involving companies implicated in the mutual fund scandal.
Why aren't we angry with them?
"I think there's a general feeling Wall Street screws people every day, but the public trusted the mutual funds," said Robert J. Bukowski, a senior consultant at Alpha Investment Consulting Group in Milwaukee. "They trusted Vanguard and Fidelity and Putnam and Strong - they were all good people helping us make money."
They may be at core of mutual fund scandals
The mutual fund industry is usually viewed as the main culprit in the scandal New York Attorney General Eliot Spitzer ignited last fall.
Hedge Funds
Open only to wealthy investors
Don't have to register with regulators; no restrictions on how they invest
Never file lists of holdings with regulators; clients may never know what's in the fund
Very restricted in how they can advertise and promote themselves
Typical arrangement is 1%-2% management fee and managers get 20% of profits
About 6,000 to 7,000 hedge funds together manage $600 billion to $650 billion in assets
Ask your neighbors, relatives or the person next to you in line at the grocery store - if they're mad at anyone, it's the mutual funds.
But what about hedge funds?
In many cases, hedge funds - investment partnerships for institutions and wealthy individuals - were pushing for, and profiting from, the bad behavior.
Sure, certain employees at Putnam Investment Management LLC have been accused of making short-term trades in their own accounts, and the two founders of Pilgrim Baxter & Associates Ltd. are alleged to have allowed extensive short-term trades in and out of their PBHG funds.
Closer to home, Richard S. Strong is in negotiations with regulators regarding allegations he made rapid trades in and out of his Strong Capital Management Inc.'s mutual funds.
For the most part, though, the evidence so far suggests hedge funds were at the core of many of the activities involving companies implicated in the mutual fund scandal.
Why aren't we angry with them?
"I think there's a general feeling Wall Street screws people every day, but the public trusted the mutual funds," said Robert J. Bukowski, a senior consultant at Alpha Investment Consulting Group in Milwaukee. "They trusted Vanguard and Fidelity and Putnam and Strong - they were all good people helping us make money."
