Hi !

I want to invest in several different hedge funds or fund-of-funds.
But I don't have enough dough to meet their high minimums.

Someone told me there are now mutual funds which will allow a small
investor to participate in hedge funds and fund-of-funds, just like
the big guys.

(Caution:  I may be mistaken.  It may be exchange traded funds or some
other kind of funds---not mutual funds---which allow small investors
to participate in hedge funds and fund-of-funds.)

A 5-star answer would be a list of 10-15 ticker symbols which would
allow a small investor to participate in these alternative
investments.  Please don't spend your valuable time doing 
research beyond getting the basic ticker symbols---I would like to
do the background research myself.

All comments greatly appreciated !

ron

---

Request for Question Clarification by markj-ga on 31 Jul 2003 13:43 PDT

nronronronro --

The development to which you are referring is undoubtedly the recent
emergence of "funds of hedge funds."  This phenomenon is currently
under active regulatory consideration by the Securities & Exchange
Commission, and there is a lot of information out there on this
subject.  These funds of funds were invented for the purpose of
allowing hedge funds to be made more available to somewhat less
affluent investors.

However, before I can attempt a useful answer to your question, a
little clarification is necessary.

First, unlike "exchange-traded funds," these "funds of funds" do not
have a secondary market; nor is there an automatic right of redemption
as there is with ordinary mutual funds. So,there are no ticker symbols
to provide and they are not publicly advertised.  I could provide you
with information on the sponsors of these funds and how they are
"marketed" to potential investors.

Second, the minimum investment in funds of hedge funds that are
"registered" with the SEC -- and thus are subject to its full
regulatory jurisdiction -- has been set at $25,000, which is much,
much less that the usual minimums for hedge funds (here and abroad)
and for unregistered funds of hedge funds.  That's the good news.  The
bad news is that, so far, offerors of these funds of funds have
voluntarily been imposing a qualification requirement for their retail
customers of a $1 million net worth or a $200,000 annual income.

With those facts in mind, could you provide clarification as to what
you would like to see in a satisfactory answer?

markj-ga

---

Clarification of Question by nronronronro-ga on 31 Jul 2003 16:12 PDT

Hi markj !

I understand that you will not be able to provide tickers.

Please add 4 or 5 paragraphs to the 4 paragraphs already in your clarification.
This will make ~9 paragraphs total. That would be a 5-star answer for me.

Thanks !
ron

ron --

Thanks for your clarification.  In order to give you a useful and
relative concise answer, I will first supply some basic information
about this complex and constantly changing subject and then point you
to the best online source materials that I have come across so that
your own research can be jump-started.

The development to which you are referring is undoubtedly the recent
emergence of "funds of hedge funds" that are operated by investment
companies that are registered with the Securities and Exchange
Commission.  This registration allows the companies to sell legally to
unlimited numbers of investors (that is, to the public) but subjects
them to being regulated by the SEC.

As more and more of these investment vehicles have been created over
the last year or two, the Securities and Exchange Commission and
Congress have gotten increasingly concerned, and inquiries in both
bodies are ongoing.  The basic regulatory and legislative problem is
how to protect relatively unsophisticated retail investors from the
risks of unregulated hedge funds (such as high fees and illiquidity)
while making their benefits (such as potentially higher returns and
protection in "down" markets) more widely available.

The key element of these new registered "funds of funds" for your
purposes is that their minimum investments are currently set as low as
$25,000, which is much lower than the minimums required by unregulated
hedge funds, which often are $1 million or more.  However, offerors of
these funds of funds have so far also been voluntarily imposing a
qualification requirement for their retail customers of a $1 million
net worth or a $200,000 annual income.  The goal of these voluntary
constraints is clearly to forestall onerous regulation.

A very useful plain-English summary of the issue by TIME.com in June
2002 can be found at the following link, although this piece was
written before the acceleration of the creation of these funds of
funds generated the currently heightened regulatory activity:
TIME: Affordable Hedge Funds
http://www.time.com/time/globalbusiness/printout/0,8816,265448,00.html

The most current summary of the regulatory concerns can be found in
the testimony of William H. Donaldson before the House Financial
Services Subcommittee on Capital Markets, Insurance and Government
Sponsored Enterprises on May 22, 2003:

"Funds of hedge funds raise special concerns because they permit
investors to invest indirectly in the very hedge funds in which they
likely may not invest directly due to current legal and regulatory
restrictions. … Investors in these funds receive very little
information on an on-going basis regarding the underlying funds and,
because the underlying hedge funds are not subject to our examination
authority, we have very little information regarding them as well. Our
further work in this area will include consideration of the type and
level of information available to funds of hedge funds, and their
investors, from the underlying hedge funds."
SEC Congressional Testimony: William H. Donaldson: May 22, 2003
http://www.sec.gov/news/testimony/052203tswhd.htm


How can one get information about individual registered "funds of
hedge funds" and how can shares be purchased?

Unlike mutual funds, you will not see advertisements for "funds of
hedge funds," and you will not find them listed in the newspaper with
ticker symbols.  Rather, they are typically marketed to individual
investors privately through full-service brokerage houses or
investment management companies who are affiliated in some way or have
other arrangements with the investment company that operates the fund.
Again, the voluntary marketing discreteness is undoubtedly aimed at
forestalling harsh regulation.

According to Chairman Donaldson's recent Congressional testimony:
"In the summer of 2002, the first fund of hedge funds became eligible
to sell its securities to the public. Subsequently, there have been
approximately 19 other funds of hedge funds cleared for the public
market."
SEC Congressional Testimony: William H. Donaldson: May 22, 2003
http://www.sec.gov/news/testimony/052203tswhd.htm

This number changes quickly as new funds are created and a few go out
of business.  Google searches combining names of prominent brokerage
houses with the search term "funds of hedge funds" resulted in
references to brokers in the business of selling these funds to their
qualifying customers.  For example, at Paine Webber:

"The latest wrinkle is funds of funds that are registered with the
SEC. These are subject to stricter reporting and disclosure
requirements and must have a board that looks out for shareholder
interests. Investors must still meet [a] net-worth test, but the
number of investors is unlimited. Minimums run as low as $25,000. The
biggest player is UBS PaineWebber, which manages $3 billion like this.
Similar funds are sold at banks and other firms."
TIME: Affordable Hedge Funds
http://www.time.com/time/globalbusiness/printout/0,8816,265448,00.html


Also, here is a recent magazine's reference to various other money
managers and brokers:

"… Global Asset Management, Oppenheimer, and Deutsche Bank are
offering a more affordable breed, a fund of hedge funds, for $25,000
to $50,000."
Business 2.0: May 2003: Champagne Funds For Chardonnay Investors
https://www.business2.com/subscribers/articles/mag/0,1640,48947,00.html
 



The bottom line is that "registered funds of hedge funds" are in their
regulatory and marketing infancy but are growing rapidly.  For now,
their availability seems to be largely limited to relative high income
and high net worth investors -- although not nearly as wealthy as
those eligible to buy into traditional hedge funds.  Whether and how
soon these funds become widely available with even lower minimum
investments and net worth/salary requirements depends largely on the
regulatory model that is imposed on them by Congress and the SEC.


Additional sites:

Here are some of the more useful sites that I found for pursuing
further background research of your own:

A summary of the pros and cons (mostly the pros) of funds of hedge
funds from a fund manager:
Rydex Funds: Funds of Hedge Funds
http://www.rydexfunds.com/EducationCenter/hedgefunds9.cfm

A large law firm's summary for its clients of the May 2003 SEC
"Roundtable" on hedge funds:
Paul, Hastings: SEC Hosts Roundtable Discussions Concerning Hedge
Funds
http://www.paulhastings.com/ClientAlerts/Content/06-03%20SEC%20Discussions%20on%20Hedge%20Funds.htm


A discussion of the state of the "funds of hedge funds" industry, with
the views of two operators of U.S.-registered funds of funds -- Torrey
Associates PLC and Man Group PLC:
Morningstar.com: Execs Warn of Hurdles in Marketing Registered Hedge
Funds
http://216.239.39.104/search?q=cache:96dTnmJff2wJ:news.morningstar.com/news/DJ/M06/D24/1056462060726.html+%22registered+funds+of+hedge+funds%22&hl=en&ie=UTF-8


An Investor Alert from the National Association of Securities Dealers:
NASD: Funds of Hedge Funds - Higher Costs and Risks for Higher
Potential Returns
http://www.nasd.com/Investor/Alerts/alert_hedgefunds.htm


FAQs on funds of hedge funds, from the SEC:
SEC: Hedging Your Bets: Hedging Your Bets
http://www.sec.gov/answers/hedge.htm


Search strategy:

I relied on Google searches designed to sift through the large amount
of online information and gradually zero in on the most useful and
reliable sites.  Here are a few representative examples, among many
others:

"funds of hedge funds"
://www.google.com/search?hl=en&lr=&ie=ISO-8859-1&q=%22funds+of+hedge+funds%22&btnG=Google+Search

"registered funds of hedge funds"
://www.google.com/search?hl=en&lr=&ie=ISO-8859-1&q=%22registered+funds+of+hedge+funds%22+

"hedge funds" "available to retail investors"
://www.google.com/search?sourceid=navclient&q=+%22hedge+funds%22+%22available+to+retail+investors%22


I also browsed at the SEC web site: http://www.sec.gov/ , and searched
on that site using the search term "funds of hedge funds."

I hope that this information is useful to you.  I certainly learned a
lot in the process of compiling it.   If any of the above is unclear,
please ask for clarification before rating this answer.


markj-ga

markj---terrific answer.  Thank you !  ron

I found one that tracks The Standard & Poor’s Hedge Fund Index, which
would allow you to participate in multiple hedge funds.  It is just
starting up.

Index Symbol & 
Fund CUSIP Number: SPHG
78355X104 

http://www.rydexfunds.com/campaigns/sphinxoverview.cfm " Rydex SPhinX
Fund"

Sincerely,

Wonko

Thanks, wonko !

This looks very promising.  I appreciate your taking the time to offer
the comment.   ron

ron --

Thanks for the kind words and the five-star rating.  I enjoyed the project.

markj-ga