CNNMoney.com- Growth of so-called 130/30 and 120/20 funds may lift borrowing costs for hedge funds, according to a report released Monday by the consulting firm Vodia Group.
These 130/30 and 120/20 funds are an increasingly popular alternative to hedge funds among institutional investors. The vehicles typically use leverage, or borrowed money, to magnify their long positions to 130% or 120% of their portfolio. They then short 30% or 20%, giving them a net exposure of 100%.
The funds provide general exposure to hedge-fund-like investing strategies but with lower fees and often under the umbrella of large, well-known financial- services companies such as State Street (STT) , Barclays Global Investorsand Goldman Sachs (GS) , Vodia explained.
The top managers of 130/30 and 120/20 funds currently manage less than $50 billion in assets, versus roughly $2 trillion in the hedge-fund industry, Vodia said. However, companies that specialize in the field are adept at raising large amounts of assets quickly, the firm added.
That’s a problem for hedge funds because it may create more demand for margin and stock borrowing.
