Goldman’s Absolute Return Tracker index is a hedge fund clone that allows investors to invest in hedge fund-like strategies without the associated high costs.
Link: Goldman sets up hedge fund clone
Goldman Sachs has become the first bank to create a hedge fund replication tool in a move that could lead to a shake-up of the $1,300bn hedge fund industry. [This is a] revolution being compared with the arrival of index trackers in the mutual fund world a generation ago. Replication strategies are based on academic research that suggests hedge fund performance is largely driven by movements in underlying markets, such as equity, bond and commodity prices, rather than the intrinsic skill of managers.
So many issues come to my mind here:
- Goldman's brokerage business will no doubt face problems with hedge fund clients complaining that Goldman is biting the hand that feeds it (same for other banks that follow Goldman's lead)
- Some hedge funds will close shop when it is revealed that their strategies depend more on following prices and using leverage, than true security-picking skills
- Other hedge funds will close shop when Goldman's bargain basement fees (1%) demonstrate to customers that high fees are not a prerequisite for investing for hedge fund-like performance
- High returns will (arguably) become harder to achieve in future as democratisation of the investment process results in more money chasing the same investment opportunities. If this happens, this will be by far the biggest effect of this development.
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