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November 22, 2004 at 07:00 PM
NEW YORK (HedgeWorld.com)–After years of being considered synonymous with excessive risk, hedge funds are now avoiding it and becoming more like mutual funds, a hedge fund veteran said Wednesday.
According to Morgan Stanley Managing Director and Senior Investment Strategist Byron Wien, there has been a philosophical shift in the industry toward reducing volatility and making do with lower returns.
“This is the most serious problem facing the industry,” said Mr. Wien, speaking at a symposium organized by Ernst & Young. He referred to a new essay he has written in praise of high volatility.
Mutual funds took 50 years to go from a performance-oriented structure to an asset-gathering structure, whereas it has taken hedge funds only five years to make that unfortunate transition, he said.
From this point of view, managers that rely on management fees do not want to risk a loss because that may cause investors to withdraw assets. And most managers have their own money in their fund and do not want to take a personal risk.
