As investment banks rush to join the alternative investment party, does buying minority stakes in hedge funds make sense? Lehman Brothers has taken 20 per cent stakes in three funds, Merrill Lynch last week bought a stake in DiMaio Ahmad, and Morgan Stanley is in talks to buy a stake in Avenue Capital.

Their motivation is understandable. The big banks are keen to build their offering in a hot area. Buying a stake provides exposure quickly. In theory, the acquiring bank gets access to the fund for its clients, opportunities to learn more about alternative investing and can use its network of wealthy investors and existing infrastructure to help accelerate the growth of the hedge fund.