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8 Jan 2007

BGI gets Ahead with Hedge Fund Technology

"We didn't set out to be a hedge fund giant," said Blake Grossman, the head of Barclays Global Investors in San Francisco.

But it has!... BGI manages almost $1.7 trillion in assets and has a stake in 65 of the world's 100 largest pension plans, making them one of the most powerful forces in money management today.

New Technology goes into the picking of the shares, such as computer software called Optimizer, which crunches corporate earnings data and dozens of other variables for almost every stock in the world. Ph.D.s, mathematicians and other quantitative analysts, or quants, spend their time at BGI designing investing strategies for thousands of stocks, bonds and currencies and then use computers to pick which ones to buy and sell.

Grossman has used his quants to transform a firm built on index investing into one of the world's largest hedge fund managers. In an article by Bloomberg, it was reported that Grossman is converting corporate and public pension funds into what BGI calls a scientific approach to hedge funds.

Institutional investing is undergoing radical change, according to Grossman. Ten or 20 years ago, money managers who had been entrusted with people's retirement nest eggs refused to make risky investments or short stocks.

Now, these managers are adopting hedge fund strategies to generate the returns they will need to keep their promises to workers and retirees.

"As of Sept. 30, the firm had amassed $17 billion in long/ short funds......We think this artificial divide between long-only and long/short is one that's destined to become extinct over the next several years" Grossman said.

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