Citigroup To Play Hedge Fund Matchmaker

August 6, 2001 ( - Citigroup has formed a new unit that will act as a "matchmaker" between hedge funds and potential clients.

Six marketing staffers will work for the Capital Introduction Group, which will be part of Citigroup’s Smith Barney Prime Brokerage, according to Reuters. Prime brokers clear trades for hedge fund companies and often provide financing for these trades.

Citigroup’s asset management group, which manages the company’s pension, is one of the departments that wants these introductions to hedge fund managers, according to the report.

Back to Basics

A hedge fund is a catch-all term for investment pools that are not regulated as a mutual fund. They use a variety of investment styles that may involve going both long and short, hedging exposure to the broad market. Hedge funds may use leverage to amplify returns and usually charge incentive fees.

More importantly in the recent down markets, hedge fund returns have relatively low correlation with major market indices such as the S&P 500, offering plan sponsors diversification benefits, and many hedge fund strategies also offer downside protection compared to broad stock market indices.

Universe of Appeal

Attracted by the chance to run their own businesses and amass significant wealth, many of the most talented portfolio managers have departed large institutional asset management companies to set up hedge funds.

While there are roughly 5,000 hedge funds that jointly manage an estimated $500 billion in assets, the funds are prohibited from advertising. Further complicating matters, the transparency of their strategies and holdings to interested investors has been a matter of some debate.