- As the line blurs between hedge funds and banks, a bit of mystique goes missing.
- Economist Staff, The Economist
- July 05, 2007
People have trouble defining the term hedge fund. For some it simply conveys an aura of big money tinged with a dashing hint of menace. But within a few years the term may be even more meaningless than it is now, because hedge funds are rapidly becoming indistinguishable from the rest of the financial-services industry.
D.E. Shaw, an American group, is a case in point. It started as a "quantitative" manager, using sophisticated computer models to pick stocks and, with $26 billion under management at the end of 2006, was ranked as one of the four largest fund groups in the world.
But hedge funds were only the beginning; there is barely a financial activity in which D.E. Shaw is not now involved. In early June it announced a bid for James River, an insurance firm. The group already has an arm, Laminar Direct Capital, that makes direct loans to firms. It has considered moving into private equity and owns FAO Schwarz, a big toy store. As well as running hedge funds, it operates a “long-only” business, which buys assets in the hope they rise in price.
As hedge funds like D.E. Shaw move in one direction, investment banks and conventional fund managers are shifting in the other. Many have bought hedge-fund groups outright (such as JPMorgan Chase's purchase of Highbridge Capital Management) or have taken minority stakes in them (Lehman Brothers bought 20% of D.E. Shaw in March). Others either operate funds-of-hedge-funds (Goldman Sachs) or have set up separate hedge-fund arms (Gartmore and—less successfully of late—Bear Stearns).
Read the entire article at CFO.com
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