Comments on: Judging hedge funds http://blogs.reuters.com/felix-salmon/2009/04/17/judging-hedge-funds/ A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 http://wordpress.org/?v=4.2.5 By: Anonymous http://blogs.reuters.com/felix-salmon/2009/04/17/judging-hedge-funds/comment-page-1/#comment-557 Sat, 18 Apr 2009 06:02:17 +0000 http://blogs.reuters.com/felix-salmon/2009/04/17/judging-hedge-funds/#comment-557 Can you explain how easy it is for someone’s 401K or IRA account to be transferred in entirety to a hedge fund on the advise of one’s financial adviser without any fiduciary responsibility on either the part of the adviser or custodial institution who launders someone’s life savings when it turns out that the hedge fund is a fraud? This would be most appreciated.

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By: Ray Lindsley http://blogs.reuters.com/felix-salmon/2009/04/17/judging-hedge-funds/comment-page-1/#comment-544 Fri, 17 Apr 2009 19:34:46 +0000 http://blogs.reuters.com/felix-salmon/2009/04/17/judging-hedge-funds/#comment-544 Your article starts out fair and balanced, but you can’t help but lapse into the currently popular anti-hedge fund rhetoric. Yes, there is fraud in the hedge fund world (as there is in any field that involves huge sums of money), but that is no reason to vilify an entire industry. Look, hedge funds are marketed to supposedly sophisticated investors who should be able to perform a thorough due diligence, or hire someone who can, before they invest. There are always predators willing to prey on those that are looking for something that is too good to be true and don’t want to do their homework.

Having said that, I do believe that strong regulatory oversight is long overdue in this industry.

What I think you are trying to say, but don’t actually state, is that the additional risks may not be worth the returns that, on average, does not markedly outperform the averages. This is a valid point, but I guess it does not promote readership as much as playing to the anti- hedge fund populace.

http://www.FinancialServicesIssues.com

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By: fred http://blogs.reuters.com/felix-salmon/2009/04/17/judging-hedge-funds/comment-page-1/#comment-541 Fri, 17 Apr 2009 17:50:38 +0000 http://blogs.reuters.com/felix-salmon/2009/04/17/judging-hedge-funds/#comment-541 the 2% fee is already implied in the -19% return, so Paul had $81 at the end of the year….

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By: Sam http://blogs.reuters.com/felix-salmon/2009/04/17/judging-hedge-funds/comment-page-1/#comment-538 Fri, 17 Apr 2009 16:56:21 +0000 http://blogs.reuters.com/felix-salmon/2009/04/17/judging-hedge-funds/#comment-538 Hedge funds add a layer of FAT on top of existing management of the companies that they take over. They operate with profit margins of up to 95% and in legal ways they are very much like what the old mob used to be. They drive up cost, they are not motivated by the same forces that the Entrepreneurs who started the companies had. Many are headed by former political, social and ex military people who have used their office and leverage access to large sums of money from any source, both scrupulous and unscrupulous. It is not uncommon for a former political hack to go to work for a bank, hoard up a sum of money and then spin out some venture one penny stocks, in short they are schemers. They should be taxed out of existence. The path from civil service to this form of Intrapreneurhip that is like a form of modern feudalism should be bulldozed when the hedge fund moves into more than one company. Much of it started in England and spread to the US and when we think of all the trillions lost, in most cases it is a hedge hog that has gobbled up the money like so much slop. They are people with to much money and no sense, moral or otherwise. They are corporate feudalism and bad for capitalism and entrepreneurial-ism. They are hogs.

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By: Chris Allison http://blogs.reuters.com/felix-salmon/2009/04/17/judging-hedge-funds/comment-page-1/#comment-533 Fri, 17 Apr 2009 15:25:06 +0000 http://blogs.reuters.com/felix-salmon/2009/04/17/judging-hedge-funds/#comment-533 It is a good article, benchmarking a hedge funds performance is rubbish, they aim or are at least supposed to post positive not negative returns, they charge high fees for this ability, therefore when they lose money life is tough.

On the fee point you make, most funds post Net returns for the period in question, so if you have a fund which publishes a 19% decline, that would typically be after management fees.

One area that is going to be interesting going forward is how firms that are down say 20% from their high water mark at the end of 08 make up that short fall to earn performance fees (which would also be taken out if it was a +19% return), one would have to toil very hard to with no incentive to get back to zero giving an incentive to just close the fund. Some funds that I work with are looking at methods where you can earn 50% of the normal performance fee if you are ‘working off a deficit’ you would then as a quid pro quo have to continue to earn 50% for a period after getting back to your high water mark.

Chris

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By: Jacob http://blogs.reuters.com/felix-salmon/2009/04/17/judging-hedge-funds/comment-page-1/#comment-529 Fri, 17 Apr 2009 15:19:12 +0000 http://blogs.reuters.com/felix-salmon/2009/04/17/judging-hedge-funds/#comment-529 Felix, I agree. I’m not sure what Bernstein’s point is. The choice of benchmark is generally tied directly to the prospectus of the fund; it is a function of investor demand and the type of hedge fund. Not all hedge funds are seeking absolute returns in all market environments, and most have a very specific mandate that may be completely orthogonal to the returns of a “typical portfolio of 60% stocks and 40% bonds”. What on earth is a “typical portfolio” these days anyway? It doesn’t make sense to compare the returns of different asset classes, since investors are deliberately allocating to a broad set of strategies. You could argue that some strategies are ineffective and should not exist, but otherwise you’re comparing apples and oranges. It makes perfect sense to compare a long-only fund to a broad-market index; it makes absolutely no sense to compare, say, a merger arbitrage strategy to a bond portfolio.

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