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Hedge Funds for Hoi Polloi

Barron’s – The struggling hedge-fund industry has hit upon a brilliant growth strategy: If you sell more products that more people can invest in, you will likely attract assets. GeniusAnd so we’re seeing more and more hedge funds announcing they’re entering the mutual-fund business.

While this may smack of desperation from an industry that has, largely, suffered from poor performance and ignominious outflows, the reasons aren’t all craven: The asset-management industry is changing rapidly. There’s more demand for alternative investments—McKinsey & Co. predicts U.S. allocation to alternatives will increase to 28% of total portfolio assets by the end of 2013—but there’s also more aversion to the lockup periods that prevent investors from withdrawing their money. Also, the largest investors in these alternative funds are those quaint pension plans that few Americans are offered these days. As those plans shrink, there’s more demand for more widely available alternative strategies, like long/short, distressed debt and merger arbitrage.

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