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State Street Worries about Bubble as It Builds Hedge Fund Business

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NEW YORK (–Alan Brown, chief investment officer at US$1.2 trillion institutional asset manager State Street Global Advisors, Boston, sees an insatiable demand from institutional clients for more alpha as they struggle to bridge the budget gaps caused by relatively modest returns in most markets.

The risk is that picking good managers is as difficult as picking good stocks, he said, speaking at a press conference. “We are concerned about potential bubble conditions in things like hedge funds,” he said.

State Street has been setting up internal hedge funds and installing some of its traders in these vehicles. Mr. Brown said the platform is being developed carefully. This is part of a larger shift by State Street from index-based asset management to active management.

The latter still accounts for a smaller share of the firm’s assets but is a growing component of its revenues. Mr. Brown said the firm is launching an investment program that is not based on traditional market-driven benchmarks but geared to the liabilities of pension plans.

Christopher Woods, former chief investment officer at the London office, heads State Street’s hedge fund group. The long-term goal is to build a broad, diversified range of strategies, said Mr. Woods. A large portion of the assets in this operation are in equity market neutral, but recently currency and arbitrage strategies have been added (see ).

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Contact Robert F. Keane with questions or comments at: [email protected].


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