Can Hedge Fund Talent and Skill be Mass Produced?

April 17, 2007 |

One of the aspects of the hedge fund industry that has always intrigued me is how true talent and skill can rise to the top. When I saw this story appear on The Red Herring recently, I had to ask myself — can a parallel be drawn that might help illustrate the complexity in achieving this?

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.

My first reaction is to wonder if this is similar to George-Pierre Seurat’s attempt to quantify human emotion through a new language of art and a scientific method to painting. This announcement by Merrill, Goldman, etc sounds similar to me. However, maybe I’m reaching? This weekend I went to see the current exhibit at the Museum of Fine Arts, Houston, The Masterpieces of French Painting from the Metropolitan Museum of Art: 1800 - 1920 so I had painting on my mind.

Can talent/skill be bottled and marketed?

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