Investor Alert

June 23, 2009, 5:21 p.m. EDT

Van Eck starts mutual fund that invests in hedge funds

New fund is latest hedge-like offering from mutual fund industry

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By Alistair Barr, MarketWatch

SAN FRANCISCO (MarketWatch) -- Van Eck Global said Tuesday it's launching a new mutual fund that invests in hedge funds, the latest sign the mutual fund industry is expanding its offerings of alternative investments in the wake of the financial crisis.

The Van Eck Multi-Manager Alternatives Fund , an open-end mutual fund, will allocate money to several underlying hedge fund managers.

The new fund is allowed to invest in open and closed-end funds and exchange-traded funds. It can allocate money to arbitrage and long/short hedge fund strategies.

Van Eck said it will pick some managers itself, but will also work with Explorer Alternative Management, a firm that researches hedge funds and has a large database of managers.

Van Eck joins a number of mutual fund companies that have introduced funds that either use hedge fund strategies or invest in the $1.4 trillion industry.

The hedge fund industry had its worse year on record in 2008 as the financial crisis triggered massive investor redemptions and big losses. However, managers tracked by Hedge Fund Research lost 19% on average last year, easily beating the benchmark Standard & Poor's 500 index.

Mutual funds that take both long and short positions also held up better than the overall equity market, losing less than 16% in 2009, according to Morningstar.

"The global financial crisis has made it increasingly clear that a well-allocated portfolio should include exposure to more alternative, hedge-style strategies," Harvey Hirsch, senior vice president of marketing at Van Eck, said in a statement.

The mutual fund industry is trying to capitalize on some hedge fund drawbacks that were exposed during the crisis last year. Some hedge fund investors are upset because several large hedge fund firms suspended redemptions and limited liquidity in other ways.

The Bernard Madoff scandal was another body blow to the hedge fund industry late in the year.

"High net worth requirements, a general lack of transparency, and concerns over liquidity and long lock-up periods have kept many investors on the sidelines," Van Eck said. "By way of contrast, the new Van Eck fund offers daily liquidity, no net worth restrictions, a high degree of transparency and daily net asset valuation."

Other mutual funds that use hedge-style strategies include Ivy Asset Strategy /zigman2/quotes/200116034/realtime IVAEX +1.56% , BlackRock Global Allocation /zigman2/quotes/205546109/realtime MALOX +1.20% and Pimco All Asset All Authority /zigman2/quotes/205609764/realtime PAUIX +0.91% .

US : U.S.: Nasdaq
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US : U.S.: Nasdaq
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US : U.S.: Nasdaq
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Alistair Barr is a reporter for MarketWatch in San Francisco.

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