Hedge funds, whose velvet ropes traditionally excluded the small retail investor, are coming to Main Street.
Goldman Sachs, Merrill Lynch, and J.P. Morgan have rolled out tools to replicate, or clone, hedge fund-style performance without the standard fees, which typically amount to 2 percent of assets and 20 percent of any gains. Industry players say mainstream mutual funds or exchange-traded funds based on exotic hedge fund strategies could be launched within a year.
IndexIQ, based in Rye Brook, New York, which opened its doors in June and raised $5 million in an A round from angels and financial-industry backers, is joining the effort to create synthetic hedge funds by building and licensing indexes that track hedge fund strategies. One such strategy could be betting on global “macro†trends.
“There’s a bunch of academic research that up to 80 percent of hedge fund returns can be replicated through asset allocation alone,†said Chief Executive Adam Patti. “The problem with hedge funds is there are so many and they’re charging 2 and 20. There are 9,000 hedge funds out there. There can’t be 9,000 brilliant hedge fund managers.â€Â
