Mutual fund launched by Legg Mason’s hedge fund affiliate

In what some say is a growing trend, The Permal Group Inc., a fund-of-hedge-funds affiliate of Legg Mason Inc., today launched its first mutual fund. The Legg Mason Permal Tactical Allocation Fund (LPTAX) is a global multiasset tactical-allocation fund of funds. Initially, it will invest 50% to 60% in Legg Mason products. The Permal fund is the second hedge fund manager this year to launch a retail mutual fund. The first, in January, was the AQR Diversified Arbitrage Fund, offered by AQR Capital Management LLC of Greenwich, Conn. More hedge fund managers are likely to launch retail mutual funds this year, said Jane Li, manager of investment management and research at Boston-based financial services advisory firm FundQuest Inc. Last year, the hedge fund industry lost 18.3% of its assets and dropped to about $1 trillion as of Dec. 31 due to the market downturn and redemptions, according to published reports. “Hedge fund managers want to get into the retail market because it is a huge market,” Ms. Li said. “And it’s likely that regulations are going to tighten up anyway for hedge funds.” The expense ratio for the fund is 1.75%, and there is a front load of 5.75%. The minimum investment is $1,000. “The fee is in the ballpark with other comparable asset allocation portfolios,” said Matt Schiffman, head of Americas retail for Legg Mason. “My suspicion is that you will see more [such funds] involved in Legg Mason products, and you will see more multimanaged products from Legg Mason going forward.” Regulatory reform under consideration by the federal government could result in more transparency, disclosure and monitoring for the hedge fund industry. Historically, hedge funds and funds of hedge funds have been available to institutional investors and high-net-worth investors. Typically, with funds of hedge funds, there is cost paid to the adviser as well as to the underlying fund managers. The New York-based Permal has $20 billion in assets under management. Baltimore-based Legg Mason had $698 billion in assets under management as of Dec. 31.