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Thursday, May 29, 2014

Rolling on the River ... to What End?

News summary by MFWire's editors

Have you heard of Pine River Capital Management? If not, that’s because up until recently it was one of those private hedge funds, available only for institutional and wealthy investors.

But, as Svea-Herbst Bayliss noted in a recent story for Reuters, it’s become more available to regular Mom & Pop investors via the new Wells Fargo Alternative Strategies Fund, a multi-manager alternative mutual fund that was set-up largely with the help of fund of hedge funds Rock Creek Group, which Wells Fargo bought a majority stake in earlier this year.

The $14.6 billion mortgage and credit specialist firm that’s headquartered in Minnetonka, Minnesota, owes a large part of its recent growth to strong performance and new asset flows into its funds. The firm’s popular six-year old fixed-income fund returned as much as 32.6 percent on average annually, the Reuters article noted, and made headlines especially in 2009 after posting a whopping 93 percent gain.

But most money managers and financial advisors have been dubbing alternative mutual funds as lower risk, lower volatility strategies that investors can tap to supplement mediocre bond performance going forward, but that they shouldn’t expect “shoot-the-light-out” returns from these, as they’re usually hard to find these days. And especially in liquid form ’40 Act form, hedge funds likely won’t be able to deliver those returns anyway, as Herbst-Bayliss mentioned in her article. So what are you really looking for? High-flying numbers like Pine River’s or a slow and steady ride? Make up your mind.

Moreover, retial investors still perceive these strategies as too new and esoteric to give them a lot of weight, so they’d likely be investing a small percentage of their portfolio in these vehicles, if anything. And when it comes to multi-manager structures, the money will usually be spread among anywhere from five to 20 managers, so even if one of those managers is making head-turning double digit numbers, your 15 percent of a two percent allocation to it likely won’t make a dent in the overall portfolio.

Maybe if you could actually invest in Pine River, and other funds like it, directly, there’d be more to gain, but the jury is still out as to when or if that’ll be possible. Many industry experts speculate that the underlying hedgies in these multi-manager funds will go out and launch ’40 Act funds themselves, as they already had to go to the trouble of setting up daily liquid, less fancy versions of their products anyway. But, who needs another headache?

And Brian Taylor, Pine River’s founder, was as openly “definitive” on that topic as a hedge fund manager could possibly be, saying in the Reuters article, “Like anything new, we are taking a measured approach, but we believe it could be a growing part of our business over time.” 

Edited by: Anastasia Donde

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