Newspaper article THE JOURNAL RECORD

Shift to Hedge Funds Continues

Newspaper article THE JOURNAL RECORD

Shift to Hedge Funds Continues

Article excerpt

BOSTON -- The success of a mutual fund depends in large part on who's managing it, and the industry has its share of top-notch fund managers.

That talent is being depleted, however, as increasing numbers of portfolio managers are quitting to run free-wheeling private investment funds, or hedge funds.

This year's list of defectors includes Larry Greenberg of Boston- based Fidelity Investments, Christopher Boyd of American Century Investments in Kansas City, Mo., and John Gillespie of Baltimore- based T. Rowe Price Associates Inc. The drain is expected to continue. "If you were to take a poll of all fund managers, about 90 percent would say they would be interested in taking a crack at running a hedge fund," said Lawrence Lieberman, president of Robert H. Wadsworth & Associates Inc., a New York-based firm that recruits fund managers. The potential to make more money is the main reason for these career shifts, said Larry Bowman, who left Fidelity in 1993 and now runs his own firm in San Francisco, managing two private investment funds with a combined $600 million in assets. Top mutual fund managers who run multi-billion dollar portfolios earn between $400,000 and $2 million, Bowman said. It's good pay but minimal compared with what a hedge fund manager can make running less money, he said. If a $100 million hedge fund rises 15 percent in a year, the manager receives $3 million, plus a management fee of about $1 million, Bowman said. A portion of that income is used to cover costs and the remainder is pocketed, he said. Mutual fund managers are subject to many restraints, Bowman said. The assets of many funds are getting so big that portfolio managers can't buy the securities they want, he said. They can't buy enough of the shares in a promising small company to have an impact on their funds' performance, for instance. Mutual funds also have prospectuses that restrict managers' ability to invest anyway they see fit, Bowman said. Most are designed to invest solely in stocks and often are restricted further to, say mid-sized companies or those paying good dividends. Fund managers at the big fund groups also spend a lot of time doing other things besides managing the funds, such as visiting clients and talking to brokers, he said. Managing privates funds give managers liberty to do virtually anything. They can shift swiftly from stocks into bonds, speculate in currencies, sell stocks short hoping to profit from their decline or invest in real estate. "Hedge fund managers have a lot more tools in their tool box," Bowman said. More freedom is a big reason Greenberg said he left Fidelity after 10 years for Boston-based Summit Partners to run a hedge fund that opened last week with about $90 million in assets. "It's an opportunity to run less money in a more flexible manner," said Greenberg, who oversaw about $21 billion in assets for Fidelity, including the firm's Growth Company and Emerging Growth funds, when he resigned in January. …

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