Brokerages Hedge Offerings Amid Tumult

It might not be the return of the Old Boys' Club, but Wall Street's experiments with populism are looking less and less affordable these days.

In a bid to bulk up assets under management and collect fatter fees, U.S. brokerages and asset managers are back to trying to woo and keep rich clients by offering hedge-fund products, among other things. The offshore, thinly regulated investment vehicles have outperformed other investment alternatives this year and have never been more popular with the wealthy. For brokerages, selling the funds means wider margins than traditional equity products -- a business that has become a drag on industry profits following the market downturn.

Charles Schwab(SCH Quote) announced last week it plans to begin offering its investors a choice of third-party hedge fund products within the next 12 months. It's uncharted ground for Schwab. Once billed as a discount brokerage, the company has been eager to expand into more sophisticated (and profitable) lines, and already offers a number of products for the rich through its U.S. Trust arm. "We want to offer a wider choice of funds to our affluent clients," a Schwab spokesman said.

With returns pinched by the tough market, the funds themselves are looking for a way of generating more revenue, according to Meredith Jones, an analyst with Van Hedge Funds. "A lot of people who have in-house clients are looking to create hedge fund products because they know that high net-worth individuals are interested in that, and they want to capture that interest rather than lose them to other funds. It's hard to find anyone who hasn't thought about [opening a hedge fund], from brokerage houses to national banks to regional banks in the last 12 to 18 months," she said. ...