Telegraph.co.uk – John Duffield, founder chairman of New Star Asset Management, has raised serious concerns about the issue of fund managers front-running their long-only funds, such as unit trusts or investment trusts, with hedge funds.
Front-running is the practice of fund managers buying a security for their hedge fund before buying the same stock for their unit trust. The hedge fund may in some instances benefit from a rise in the share price because of the second purchase.
Mr Duffield said: “That’s the thing that worries me most in this business. When a fund manager is running a long-only fund alongside a hedge fund the temptation is absolutely obvious.”
Giving fund managers dual roles is an increasing trend and often used as a way to keep talent from straying.
Credit Suisse Asset Management’s Gary Potter and Rob Burdett, who run the widest range of multi-manager funds in the UK industry, have a system for monitoring such situations.
