October 29, 2006

Managing Without Managers

-- By Pushpa Sathish, Staff Writer

Passive investing – that’s the new term being bandied about in the hedge fund industry. And it’s bound to get fund managers in a tizzy as it relates to removing them as the middlemen between the funds and their investors. The benefits are manifold in this initiative – managers’ exorbitant fees are removed, and investors’ portfolios are not fiddled with on a daily basis.

According to Ryan Tagal, director of hedge fund research at the Chicago-based Morningstar Inc., this scenario is academically possible, and can be implemented at a low cost. The picture painted looks increasingly good in the face of the fact that active managers are finding it very difficult to perform at a level that justifies their high fees. Courant reports:

Index mutual funds, as envisioned for hedge funds, tend to be somewhat different than mutual funds. The focus is not on replicating an index, such as the Standard & Poor's 500, but it can be on identifying the special elements that power various types of hedge funds, then building those mechanically into a portfolio.

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