FT.com / Lex - Floating hedge funds

Floating hedge funds
Published: May 30 2007 19:24 | Last updated: May 30 2007 19:24

The traditional way of raising capital for hedge funds has worked well over the past few years, and it has tended to avoid the public market for obvious reasons. Floating the funds themselves, as opposed to the management companies, had been viewed as too difficult, because investors would be scared off by the perceived riskiness. The managers, meanwhile, would presumably rather run a mile than subject themselves to the onerous disclosure requirements – a definitional challenge for a sector that many routinely describe as consisting of unregulated pools of capital.

Bit by bit, some of that conventional wisdom has been chipped away. First came a fund listing from a near cousin of the hedge fund, private equity stalwart Kohlberg Kravis Roberts, in Europe. And there has been a handful of hedge fund listings, again in Europe. Now comes news of the first US listing. Man Group will float a vehicle to be managed by its flagship blackbox AHL fund and US manager, Tykhe Capital.


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For Man, the appeal is presumably access to “permanent capital”, which cannot disappear when the going gets tough. Man has hardly been rocked by redemptions, but the added security is nice.

That said, one would have thought the disincentives for Man would weigh even heavier. The floated vehicle would be a closed-end investment company. As such, it would face more regulatory constraints than the average hedge fund, such as added disclosure on trading and strategies. It would also not charge traditional performance fees.

As for potential investors, they might be hoping this is their way of tasting some of the exclusive AHL magic, even if only in tiny portions. But they will have to take into account the possibility of their stock trading below net asset value, which can be galling.

Copyright The Financial Times Limited 2007