Funds Hub
Money managers under the microscope
The hedge fund barbell
The fledgling market for hedge fund secondaries may be becoming barbell-shaped, according to Hedgebay.
The firm, which provides a market for those wishing to buy and sell illiquid hedge fund stakes, said there is growing evidence that trades are happening either at very high or at very low prices.
In November, for instance, the highest trade took place at 97 pct or net asset value, while the lowest was at 29 pct.
It seems that some investors are willing to pay close to NAV for higher-quality funds that are difficult to get hold of.
Others will buy into highly illiquid funds and will be prepared to wait several years in the hope of a bumper return, as long the deal is done at a bargain basement price.
The developing markets in hedge fund secondaries provide much-needed liquidity for those hedge fund investors needing cash and fed up with a fund’s long redemption terms.
But it’s still an opaque world, where permission from the hedge fund manager is needed before a trade can take place. Investors will surely welcome the further development in these markets.
Morning line-up
Hedge fund stories from the past 24 hours from Reuters and elsewhere:
Hedge funds flee to Switzerland – Guardian
Bullish times return – Forbes
Investors do greater due diligence - Dow Jones
Harbinger sells more Calpine stock – Reuters
Spotting Madoff
The due diligence, or lack of it, undertaken by investors has been one of the big talking points following the alleged fraud by U.S. financier Bernard Madoff.
But according to risk management firm Riskdata, the scandal could potentially have been spotted by (fairly complicated) statistical analysis.
I guess no model could ever make fraud impossible. But the industry seems to be in agreement that better due diligence is needed. The question is what will this look like?
40 years on…
Back when the hedge fund industry was barely into its 20s, numbered just 150 funds and managed all of $1 billion, you might have thought times were simpler; untroubled by the kinds of questions and concerns that now dominate after a turbulent year.
Think again.
Browsing through a 1969 article in Fortune magazine by Carol J Loomis you could be forgiven for concluding the industry has barely moved on. If the last year has seen the painful payback from a frantic pursuit of returns, then so it was 1969.
Loomis cites the founder of the first hedge fund , Alfred W Jones:
“The trouble began, he says, in the 1966-68 period when the craze for performance swept the investment world and when all sorts of money managers, including those in his own shop, got overconfident about their ability to make money.”
The losses suffered by hedge funds in 1969 were sharp and shocking. The Fortune article notes hedge funds with losses of up to 47 percent and points to a series of players underperforming the broader market despite the so-called cushion that short-selling provided. Average hedge fund performance in 2009 has outpaced that of wider equity markets, but we are still hearing today the same questions that Loomis felt drawn to pose:
“The debris of 1969 has naturally prompted some hedge fund investors to ask just what is it that the hedge-fund concept is doing for them. If short-selling does not afford protection in a down market, then why short at all. Why not instead retreat to cash when the market looks bad?”
For the completists, Loomis also gives us some details of the great and the good who helped to make up that herd. Deborah Kerr, Lana Turner, Rod Steiger and Jack Palance are all listed as investors, while it should surprise no one that Jimmy Stewart, that scion of right-thinking self-effacement, is noted to have withdrawn gracefully and earlier than most.
Perhaps Stewart was inspired by his appearance that year in Bandolero!, a western which sees a group of barbarous outlaws take centre stage before a final tragic denoument in which almost everyone is laid low.
