When hedge funds lose their mojo, humble pie is in order
– Matthew Goldstein is a Reuters columnist. The views expressed are his own –
We’re not quite there yet, but hedge fund managers may soon need to start giving away toasters – or perhaps plasma TVs — to woo new investors. Forcing the funds to eat a little humble pie now would benefit hedge fund investors in the long run.
Most hedge funds are off to a decent start this year — the average return to date is 9.43 percent, says Hedge Fund Research. Yet it’s a particularly tough time for launching a new fund. In the first five months of 2009, just 40 new funds have begun reporting performance figures, BarclayHedge reports.
Pension funds should ditch alpha and cut fees
– James Saft is a Reuters columnist. The opinions expressed are his own –
If anyone has reason to pray that the current equity rally holds, it is the world’s active fund managers who need investors to return to the folly of betting on outperforming the markets rather than the uninspiring but reliable business of cutting costs.
Pension funds, particularly those where the employer bears most of the risk of making good on promised payouts, are hurting after more than a decade of poor market returns.
In Britain, for example, pension funds which promise to pay a fixed percentage of workers’ final salaries are woefully underfunded. If you use a more conservative government bond yield to value the funds, the top 200 firms in Britain needed a whopping 120 billion pounds to be considered fully funded, according to consultants Aon Corporation.
This is not the result of some unforeseeable economic storm but instead the fruit of two related delusions; that a prudently managed portfolio can expect to get a return of 8 percent a year or so over the long run, and that individual funds can maximize their returns by choosing the right active fund manager who will outperform even that optimistic benchmark.
And as is so often the case when we are kidding ourselves, these assumptions allowed employers and savers to avoid doing something unpleasant; in this case putting away the cash required to actually fund retirements. Workers felt as if they were “earning” more because their take home pay was larger than it would have been if they were saving sufficiently and businesses could often take contribution holidays or avoid chucking in extra to make good the shortfalls. Win-win, right?
Well, actually no. It was more lose-lose-win, with the two losers being the savers and employers, and the sole winner the financial services industry.
I’ll buck the trend of long-winded posts. Leveraging and short selling are the worst active managers can do. Leveraging is the reason we are in the current economic mess. Worse yet, this is used most commonly in commodities. Which have huge levels of volatility- right back to market timing problems. Short selling is about to be blown up by regulation. Both are horrible strategies and why this field is dying…
Active funds, more high-paid value destroyers
– James Saft is a Reuters columnist. The opinions expressed are his own –
While they have avoided the opprobrium heaped on bankers during the bear market, traditional active fund managers have quietly been proving that they too are often highly paid destroyers of value.
Active managers have few bushes left to hide behind, and the release of a new report from Standard & Poor’s uproots one of the few left: that somehow they provide protection during down markets, being able to go into cash and defensive stocks.
Your article reminds me of when the Congress eliminated the depletion allowance which meant that their investors were left with the movie studios; who Art Buchwald, after his successful lawsuit, would have told you are the world champions of creative accounting. At least, the oilmen would take you out for drink and a good steak and regale you of stories of in the Patch.
Less than 1% of all hedge funds are worth looking at to invest. There are now abut 7-8000 funds where most have large volatility and have not controlled risk like they should have, nor do they show consistency of profits. There are only a few very elite managers that make money year after year as they have a very good shop with many expereinced anaylsts people that have traded in difficult markets. Today anyone who has an MBA thinks they can run a hedge fund. They have had a huge rude awakening gthis past year. Invstors no matter how they are should do their homework, and do not rely on other opinions. Due yourown due diligence, subscribe to databases and do not invest with thir party marketers who will pitch fund that pay them a fee. Stay away from fund of funds as they have double fees and are an excercize in mediocrity. Pay attentionto fund that have high Sharpe ratios over a minimun of 1.5. do not go with a manager under a 5 year track record no matter how good the short term record looks.