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Rating:For Hagin, Mutual Funds Are Products…And Marketing Tools Not Rated 5.0 Email Routing List Email & Route  Print Print
Thursday, October 11, 2012

For Hagin, Mutual Funds Are Products…And Marketing Tools

Reported by Tommy Fernandez

Maybe you need a background as a hedge fund manager to look upon mutual funds as not only a product to sell, but as a versatile marketing tool.

Yet that's exactly how the six-year old quantitative investment shop Hagin Investment Management looks upon the products.

"The mutual fund product is a tool," says Hagin chief executive Patrick Morris. "Too many managers are trying to create all-in-one products for advisors and institutional investors.   The result has been a high correlation of  return, particularly in down markets."

Morris adds that "if you are a carpenter you buy a saw, a hammer and screwdriver –- all-in-one tools designed for every job are never as good as custom tools that do one job well." 

The quant shop entered the mutual fund biz in April with the launch of the Keystone Market Neutral Mutual Fund.

The firm is considering more product launches next year: long-only Russell 1000 and Russell 2000 products as well as a long-short version of the market neutral fund with variable beta.

Morris says that the mutual fund "allows assets to be gathered from small investors, but most importantly, it is a product that fits with the fee-based advisor community."

Indeed, the fund is just Part One of a three-pronged sales strategy that also involves growing a high-net-worth wealth management platform and a customized separately managed account business that allows Hagin to approach larger institutions.

The mutual fund product format is valuable, Morris says, because it "enhances the distribution of the product and allows the track record to be public and basically unassailable, as we are not responsible for any of the valuation of the product. 

"Further, this gives transparency and liquidity to the product that is generally not available in limited partnership hedge funds," he says. "The public profile enhances the overall visibility of the firm as well as allaying many of the concerns that recent hedge fund scandals have brought to investors."

As for the second leg of the strategy, the HNW business, Morris says it "fits with both the mutual fund and the SMA business."  RIA clients provide stable and reliable revenue, as well as a very good source of references to new clients.  HNW clients also provides access to various pools of assets that might be otherwise hard to reach.  For example, doctors generally know other doctors so a good recommendation from one potentially opens the door to others.

The RIA practice also provides some diversification of revenue, according to Morris, since single-product shops suffer when that strategy is out of favor.  Hagin's zero-beta product fund also helps in this business because it serves as part of an overall asset allocation strategy the firm uses in-house. The fund can also serve as a diversifier in most portfolios, and an alternative to cash and short-intermediate fixed income products.

"It can be a valuable tool that enhances our practice and ability to serve clients with different investment  objectives, liquidity needs and ages," he says.

Finally, Morris says that the separately managed account approach allows Hagin "the maximum flexibility in designing custom client solutions for Ultra HNW and institutional clients." In this approach, Hagin can use a simple two-asset model, consisting of a Beta Zero, market neutral product and a Beta One product "to create customer volatility and return targeted solutions."

"Since it is a simple two-asset model, we can adjust the exposure of the client efficiently and quickly with having to execute a complicated or costly trade," he says.

Hagin currently has two active sales people that call on both advisors and individuals, and he plans to make more announcements about its distribution towards the end of this year.  

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