The time of the clone is nigh

So-called ‘cloning’ could make hedge fund investments more accessible to retail customers by dramatically lowering management fees, according to the managing director of Opes Prime Asset Management, Jay Moghe.

Moghe told the Pan Asian Securities Association conference this week that cloning could have a dramatic effect on hedge funds though demand for specialist boutique managers would remain high in coming years.

He pointed out that Goldman Sachs had become the first bank to create a hedge fund replication tool or ‘clone’, which charged a flat fee of 1 per cent, and said this represented a significant step in the shape of the hedge fund industry.

“Cloning delivers the returns of hedge funds at dramatically lower cost, by creating passive replicating portfolios or clones of other funds,” Moghe said. “They use liquid exchange traded instruments that provide similar risk exposures at lower cost and with greater transparency, without having to rely on more exotic instruments.”

He said he believed cloning would open the industry further to retail investors and pension funds due to greater transparency and lower fees.

However, Moghe said that while cloning would put downward pressure on fees across the board, it was best suited to the portfolios of hedge funds rather than individual funds.