More silly hedge fund coverage
What is it with Bloomberg’s Singapore bureau? Not content with a ridiculous article suggesting that US inflation might approach Zimbabwe levels, they’re now running a silly story about a shop by the name of “36 South Investment Managers Ltd” (me neither, but the only AUM datapoint I can find is that one of their funds has an extremely underwhelming $11 million under management.)
36 South is setting up a fund which will buy out-of-the-money call options on stocks and commodities, in the hope/expectation that if we enter a world of global hyperinflation, it will make lots of money:
The Excelsior Fund targets returns that will be five times the average annual rate of inflation of the Group of Five economies — France, Germany, Japan, the U.K. and the U.S. — should the rate exceed 5 percent.
This is just daft. France, Germany, and Japan between them account for 60% of the basket: is anybody anticipating hyperinflation in Japan? Besides, given the leverage they’re employing, how much time needs to elapse before they run out of money? As Vincent Fernando says, anybody thinking of investing in this fund would be much better off buying options on Treasury ETFs. And as Ryan Avent says, 5% isn’t hyperinflation anyway.
But more to the point, why is Bloomberg writing about these guys, given that they have zero demonstrated ability to get taken seriously by anybody with real money to invest? The reporter, Netty Ismail, quotes the co-founder of the firm as saying with a straight face that $100 million would be a “good” amount to raise, despite the fact that there’s no indication whatsoever that he’s raised anything like that sum in the past. If a well-known fund manager with a proven track record came out with a fund like this, that might be interesting. But this looks like little more than a marketing gimmick, designed — successfully, it would seem — to get press.
Incidentally, it would be nice if anybody writing about small and startup hedge funds did a bit of due diligence on them first. Before writing about firms like this as though they’re legitimate, any reporter should first confirm that they are legitimate — perhaps by asking to speak to their prime broker or asking to see some audited accounts for prior years. Otherwise, what’s to stop any old fraudster from calling himself a hedge fund, getting a couple of credulous Bloomberg stories, raising a few million, and retiring to the beach?