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Other Voices: Hedge fund world much closer to ethical normalcy than corporate and government worlds in general
Wednesday, January 07, 2009
From Philippe Manet, Peak Partners Geneva (www.peakpartners.com).
Whilst journalistic and political venom has been squirted at hedge funds, the evidence is that, as a whole, they have managed to contain losses better that traditional forms of investing in risk assets. Indeed, indices indicate that hedge fund losses have been around one half of losses in equity markets.
While this performance is disappointing, it is worth noting that most hedge fund strategies have had to operate without most of their âtool-boxâ, due to restrictions on short-selling, declining liquidity, withdrawal of credit lines and a dwindling number of counterparties.
Since many banks had chosen to become hedge funds with less transparency, questionable alignment of interest and doubtful skills, it is worth comparing the 18.2% decline in the HFRI fund weighted index with the 62% loss in the Amex Select Financial Sector Index.
Several differences should be pointed out; first, financial companies have used every possible trick to avoid marking the entirety of their holdings to market, unlike hedge funds, and, second, the recovery potential for banks will be limited by their shrinking business mix, which will contribute to capping multiple expansion.
Again, hedge funds draw criticism because it is felt that they operate in a parallel world where different rules apply. Quite to the contrary, the hedge fund world is much closer to ethical normalcy than what has happened in the corporate and government worlds. For hedge funds, success indeed means wealth and glory and failure translates into poverty and shame. Fraud committed by hedge fund managers leads to criminal prosecution and jail terms. Not so in the corporate world where golden parachutes reward the foolhardy while, in politics, there seem to be no penalty for the leveraged hypothecation of budgets; condemning citizens to a future of ever compounding financial slavery.
Strategy outlook for Q1 2009 As suggested above, there are many opportunities for relative value strategies where returns can be generated without any recourse to leverage. In particular, once the forced selling of fixed income instruments abates, there will be substantial opportunities along the entire spectrum of corporate and structured credit. However, while we felt, not so long ago, that this forced selling would ebb into the end of Q4 â08, it now appears that the Madoff fraud has caused an indiscriminate distrust of hedge funds and created an additional wave of redemptions, leading to whole or parts of portfolios being a......................
To view our full article Click here
Other Voices: Hedge fund world much closer to ethical normalcy than corporate and government worlds in general
Wednesday, January 07, 2009
From Philippe Manet, Peak Partners Geneva (www.peakpartners.com).
Whilst journalistic and political venom has been squirted at hedge funds, the evidence is that, as a whole, they have managed to contain losses better that traditional forms of investing in risk assets. Indeed, indices indicate that hedge fund losses have been around one half of losses in equity markets.
While this performance is disappointing, it is worth noting that most hedge fund strategies have had to operate without most of their âtool-boxâ, due to restrictions on short-selling, declining liquidity, withdrawal of credit lines and a dwindling number of counterparties.
Since many banks had chosen to become hedge funds with less transparency, questionable alignment of interest and doubtful skills, it is worth comparing the 18.2% decline in the HFRI fund weighted index with the 62% loss in the Amex Select Financial Sector Index.
Several differences should be pointed out; first, financial companies have used every possible trick to avoid marking the entirety of their holdings to market, unlike hedge funds, and, second, the recovery potential for banks will be limited by their shrinking business mix, which will contribute to capping multiple expansion.
Again, hedge funds draw criticism because it is felt that they operate in a parallel world where different rules apply. Quite to the contrary, the hedge fund world is much closer to ethical normalcy than what has happened in the corporate and government worlds. For hedge funds, success indeed means wealth and glory and failure translates into poverty and shame. Fraud committed by hedge fund managers leads to criminal prosecution and jail terms. Not so in the corporate world where golden parachutes reward the foolhardy while, in politics, there seem to be no penalty for the leveraged hypothecation of budgets; condemning citizens to a future of ever compounding financial slavery.
Strategy outlook for Q1 2009 As suggested above, there are many opportunities for relative value strategies where returns can be generated without any recourse to leverage. In particular, once the forced selling of fixed income instruments abates, there will be substantial opportunities along the entire spectrum of corporate and structured credit. However, while we felt, not so long ago, that this forced selling would ebb into the end of Q4 â08, it now appears that the Madoff fraud has caused an indiscriminate distrust of hedge funds and created an additional wave of redemptions, leading to whole or parts of portfolios being a......................
To view our full article Click here