Friday, September 09, 2005

The current situation of Hedge Funds

A few weeks ago there was a news item in the UK's Financial Times: "Hedge funds flat in dodging bullet".

I hope it was hugely reassuring to everyone now playing hedge funds.

However, it did raise some interesting questions:

- are the "sophisticated financial customers", to whom these sorts of funds supposedly sell under UK law, actually as sophisticated as they appear, if they are willing to pay more as fees to hedge fund operators now than was the case when these funds were new, innovative and in scarce supply?

- are these "sophisticated financial customers" perhaps even a little stupid, if they are paying more in fees now, when hedge funds are broadly losing money, than was the case when hedge funds were clearly making a lot of money?

- why is it that a supposedly intelligent marketplace allows hedge fund operators, who take no risk, to cream off 20% or more of the upside, while not sharing in the downside?

- in what other business is it the case that an involved party can share in the upside without sharing in the downside?

- should hedge fund operators be allowed to share in the upside only if they also take on the burden of sharing the downside? Sphere: Related Content

1 comment:

tgranger said...

Thank you for questioning the rational behind headge funds sharing in a substantial portion of the profits of investments will assuming none of the downside risk.
Unfortunately the term "hedge fund" has come to mean something other than a fund that hedges, reduces, the risk of investment and now is the term for any unregulated investment fund.