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Thesis follows industry trend, launches absolute return mutual fund

Thursday, April 22, 2010
Opalesque Industry Update – The launch of absolute return mutual funds, which seek to combine hedge fund strategies into mutual fund, are increasing in frequency. Described as the latest trend, these funds seek to combine the best of both worlds, allowing more investor access to the diverse and multi-strategy investment approaches found in hedge funds with the daily pricing, daily liquidity and transparency of a mutual fund.

New York-based registered investment advisor Thesis Fund Management is the latest to join the bandwagon with the launch of The Flexible Fund. The fund went live on March 1, 2010 and is now available on mutual fund platforms including Fidelity and Charles Schwab.

In a statement about the launch, Thesis said The Flexible Fund was established specifically to provide alternative strategies to mutual fund investors.

"As a hedge fund manager, I always thought hedge funds would appeal to a large number of investors. Now with The Flexible Fund we can offer every investor the same type of strategies that hedge funds use, in a regulated and familiar mutual fund format," said Stephen Roseman, CEO of Thesis Fund Management.

Early this month, Dreyfus Corporation, a unit of BNY Mellon Asset Management, launched the Dreyfus Dynamic Alternatives Fund, a new mutual fund that also allows investors greater exposure to a wide range of hedge fund returns.p> Another manager, David Marcus, partnered with Eric LeGoff to launch the Evermore Global Value Fund and Evermore European Value Fund last year. Marcus said he saw an opportunity to gain clients who want the flexibility to invest in a hedge- fund-like product without the high fees. The Evermore Funds charge annual management fees of 0.99%. Hedge funds typically charge investors a 2% management fee and take 20% of profits.

Michael Willman, president and CIO of Blue Sky Investment Partners, an investment advisory firm based in Illinois recently told SeekingAlpha.com that many big hedge fund firms are diversifying their client base by creating retail mutual funds that mimic their hedge fund strategies.

Morningstar Inc, a provider of independent investment research, said that there are now 22 funds with “absolute” in their names, up from four in 2005. Among the newer entrants is Putnam Investments, with more than $1bn in a series of four absolute-return funds launched in December 2008.

Over the past few months, the absolute return fund space swelled in size with Legal & General, Gartmore and AEGON which unveiled funds in this space, Moneywise.co.uk reported. Aviva Investors, Old Mutual Asset Managers and Deutsche Bank, are also planning to launch absolute return products later this year.

Hedged mutual funds becoming a dominant trend
In an article, Opalesque reported last year the hedged mutual funds (HMFs) or absolute return funds are becoming a dominant trend in the hedge fund industry. The article cited the working paper released by made by Naik, Agarwal and Boyson, in 2007 entitled "Hedge Funds for Retail Investors? An Examination of Hedged Mutual Funds" (Hedge Fund Centre, London Business School) which predicted that "...hedged mutual funds will play an increasingly important role in the field of investment management as they provide access to hedge-fund like strategies with the fee structure, liquidity, and regulatory requirements of mutual funds." (See Opalesque Exclusive: Hedged mutual funds (HMFs) may be a dominant trend in next hedge fund industry cycle - Part one here and Part Two here ).

Naik, Agarwal and Boyson disclosed that despite their use of similar trading strategies, hedged mutual funds underperform hedge funds. The paper attributed this to the lighter regulation and better incentives available to hedge funds and more importantly because hedge fund managers have more experience in implementing hedge fund strategies.
- Dumlao & Gravrand

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