Comments on: The problem with investing in hedge funds http://blogs.reuters.com/felix-salmon/2010/09/16/the-problem-with-investing-in-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: hsvkitty http://blogs.reuters.com/felix-salmon/2010/09/16/the-problem-with-investing-in-hedge-funds/comment-page-1/#comment-18477 Fri, 17 Sep 2010 14:14:36 +0000 http://blogs.reuters.com/felix-salmon/?p=5381#comment-18477 So will you trust Willie Aames the actor twice bankrupt who is just starting, or Clinton’s daughter who is also just starting but has a name to trust (tongue in cheek there) and a husband who is a banker?

Or will you trust the husband of a colleague who was a reformed drug dealer thug with links to organized crime turned Bay street wheeler dealer and presently a hedge fund manager (and soon after also got a law degree) who did pick them in the past?

All three have the same credentials, so whom do you trust to tie up your money and take exorbitant fees to make that fortune? Dan Ariely says it may be that if two look similar, the manager who is the least ugly when you speak to them in person. Or, perhaps if one is investing in Telecom and you did well prior investing there, you could choose there for that reason.

In actuality none sound like sound choices, but people do it anyway because they want to make mo money
http://danariely.com/bits-and-pieces/

Hedge fund manager turned entrepreneur with OPM locked in to fund his ventures.
http://www.reuters.com/article/idUSTRE67 P22J20100826

@mjfitz9 who said: “It is by desire of the funds to avoid regulatory problems.” And I would say it is normally the design of the funds to avoid/skirt regulation.

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By: DavidMerkel http://blogs.reuters.com/felix-salmon/2010/09/16/the-problem-with-investing-in-hedge-funds/comment-page-1/#comment-18462 Fri, 17 Sep 2010 03:16:03 +0000 http://blogs.reuters.com/felix-salmon/?p=5381#comment-18462 In my time at the hedge fund, I met quite a number of hedge fund-of-fund investors. Only one impressed me with their acumen, and they made the mistake of not investing with us. They were bright, but misunderstood some things the head manager said.

Odd, they had a good theory, but couldn’t get the data. Most HFoFs don’t have a good theory, they just chase performance.

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By: Publius http://blogs.reuters.com/felix-salmon/2010/09/16/the-problem-with-investing-in-hedge-funds/comment-page-1/#comment-18460 Fri, 17 Sep 2010 02:29:14 +0000 http://blogs.reuters.com/felix-salmon/?p=5381#comment-18460 The diversification thing is actually quite common among holders of Mutual Funds. By holding lots of active funds, you essentially get market performance, but you’re paying active management fees. No wonder people are flocking to index funds. At least there the fees are minimal.

@FifthDecade: read the Investment Company Act of 1940 some time. Then read some SEC enforcement cases. Hedge funds operate with special registration requirements that allow for lockups and other contract provisions. Hedge funds aren’t an asset class, they’re a legal vehicle. So the law matters.

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By: FifthDecade http://blogs.reuters.com/felix-salmon/2010/09/16/the-problem-with-investing-in-hedge-funds/comment-page-1/#comment-18457 Fri, 17 Sep 2010 01:27:45 +0000 http://blogs.reuters.com/felix-salmon/?p=5381#comment-18457 Love the angle that it’s the SEC causing the lack of Hedge Fund transparency. LOL! If this is true, then surely this is a result of the choice of Hedge Funds to be located in offshore havens with limited regulation?

If they are non-registered, non-regulated vehicles it’s no surprise they are scared of giving “investment information” since it is an offence to transmit such data across the International borders of the United States.

Perhaps if they had not run away from jurisdictions where they could be properly regulated, those same jurisdictions wouldn’t be so restrictive about letting the Hedge Funds participate in the normal investor-facing investment environment?

I know the Hedge Funds are stuffed with incredibly clever people, but maybe they think they are too clever for the rest of us and don’t feel the need to be transparent. After all, it’s only OUR money they want to play with.

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By: MRLAMF http://blogs.reuters.com/felix-salmon/2010/09/16/the-problem-with-investing-in-hedge-funds/comment-page-1/#comment-18450 Thu, 16 Sep 2010 22:47:17 +0000 http://blogs.reuters.com/felix-salmon/?p=5381#comment-18450 @mickey Theory goes like this… The more you diversify, the closer to market portfolio you hold. Market portfolio by definition has no alpha, ergo: more diversified portfolio equals less alpha.

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By: mjfitz9 http://blogs.reuters.com/felix-salmon/2010/09/16/the-problem-with-investing-in-hedge-funds/comment-page-1/#comment-18447 Thu, 16 Sep 2010 22:02:57 +0000 http://blogs.reuters.com/felix-salmon/?p=5381#comment-18447 Felix,
This is one of the most misguided posts I have ever read. The reason for hedge fund and fund of funds “secrecy” about returns is by directive of the SEC. The interpretation of the laws about advertising to non-qualified purchasers or non-accredited investors is quite broad. So if a manager lists his or her performance in a book or other publication that can be distributed to retail investors, the SEC can basically come in and shut them down or fine them substantially. It is by desire of the funds to avoid regulatory problems. In this business even a hint of running afoul of the SEC could ruin reputations and someones business. The popular misconceptions about hedge funds in the press does not serve anyone well. I am happy to discuss if you like. These SEC rules also apply to all non registered investment vehicles.

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By: jrmlal http://blogs.reuters.com/felix-salmon/2010/09/16/the-problem-with-investing-in-hedge-funds/comment-page-1/#comment-18445 Thu, 16 Sep 2010 20:05:16 +0000 http://blogs.reuters.com/felix-salmon/?p=5381#comment-18445 Pick a FoHF which has been around for a long time and has 10bln AuM or more.

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By: Jason_Ruspini http://blogs.reuters.com/felix-salmon/2010/09/16/the-problem-with-investing-in-hedge-funds/comment-page-1/#comment-18439 Thu, 16 Sep 2010 17:48:28 +0000 http://blogs.reuters.com/felix-salmon/?p=5381#comment-18439 Managed Futures funds tend to earn what fees they charge relative to long-only asset pickers. Allocating some money to a generic managed futures / CTA fund should improve the risk-adjusted returns of a traditional asset portfolio.

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By: FifthDecade http://blogs.reuters.com/felix-salmon/2010/09/16/the-problem-with-investing-in-hedge-funds/comment-page-1/#comment-18431 Thu, 16 Sep 2010 16:24:04 +0000 http://blogs.reuters.com/felix-salmon/?p=5381#comment-18431 I’m not sure I agree with you about choosing a good Mutual Fund, but you are right about hedge Funds. Every time I’ve compared the average Fund of Hedge Funds Fund to the average Mutual Fund there’s been no statistically significant difference between the two; the only perceptible difference I can see is that Hedge Funds carry much more charge eg the amazingly high “Success” Fee, charged as a percentage of profit over a given amount.

Hedge Funds are no more than a clever way to extract more money from investors.

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By: mickey7410 http://blogs.reuters.com/felix-salmon/2010/09/16/the-problem-with-investing-in-hedge-funds/comment-page-1/#comment-18429 Thu, 16 Sep 2010 15:58:10 +0000 http://blogs.reuters.com/felix-salmon/?p=5381#comment-18429 I don’t understand how you can diversify alpha away? I thought alpha was independent of any effects of diversification. Unless you mean that by investing in so many funds, the diversification results in having some funds with negative alpha, resulting in a net zero alpha.

Anybody have some insight into this, and the mathematics of alpha in a diversified portfolio?

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