Some Hedge Funds really taking it

makloda · Jul 16, 2008

Oh the double and triple layer of fees. You guys are geniuses! All the Swiss family offices must be so dumb putting their money into funds of funds.

My God, if they were just as smart as our resident ET hedge fund experts... They could all save so much in fees and simply go long SPY, EFA and TLT!!! Why does nobody tell them!!!

mokwit · Jul 16, 2008

They are looking for smooth returns from diversifying across diversified funds of funds diversified across diversified hedge funds, with the promise of higher perfomance

I think you will find that what counts to Swiss bankers/family offices is not losing money rather than making money because losing money is what loses clients and you are less likely to lose a client through not making money than losing it. Just like everyone else in the chain Swiss bankers make money from fees not performance. I mean really, doesn't UBS suggest that they are not that good at investing.

simpleton · Jul 16, 2008

Quote from mokwit:

Think what happens when people try and get their money out of a ponzi scheme or out of a bank in a fractional reserve banking system. My guess is that if everyone tries to get the money they think they made in a hedge fund investment they will find they didn't make it after all. My suspicion is that results were smoothed with mark to make believe stuff such as unlisted company investments etc.

Much of the industry does operate by smoothing returns through private investments etc. And if all investors submitted withdraw requests at the same time, the 'Gate' would trigger. But then is this any different that what a bank is? Only banks can't have gates.

Covert · Jul 16, 2008

Quote from Chood:

I don't believe the level of discernment and acuity you apparently possess is representative of all buyers of hedge and fof products. I base that on my own experience of being pitched some of those products. The content of the pitches did not imply as much sophistication as you apparently possess. Maybe it's just me: the pitching reps must have assumed I was rube.

By the way, given your ability to discern the outstanding fof and separate it from the poor ones, why not transfer that ability to trading and save yourself the fees? That ability is fungible, or didn't you know?

Apparently, I was too kind in lumping you into the 'nitwit' category. However, when I see someone such as yourself who is in such dire need some info, I will patiently explain this to you once and for all.
Now, I know that 'fungible' came up today on your Word of the Day calendar, but you may not be using that word correctly. So, here goes- the ability to identify a successful fohf has almost NO correlation to ones ability to trade successfully. These are two separate 'skills'. One has NO relationship to the other. What I was trying to say was that a good portfolio of HF's is worth the added fees paid because the investor is getting a diversified investment, and a superior cumulative return.
Best of luck to you- keep up your education.

Chood · Jul 16, 2008

Quote from Covert:

. . . So, here goes- the ability to identify a successful fohf has almost NO correlation to ones ability to trade successfully. . .

That is a radical concept to me, so your reply indeed may be educational.

P.S. "Acuity" is calendared today. "Fungible" was last week, but I didn't get to use it last week, ergo today. ("Ergo" was two weeks ago.)

Pekelo · Jul 16, 2008

"July 9 (Bloomberg) -- Hedge funds turned in their worst first-half performance in almost two decades as the collapse of subprime-mortgage bonds and rising commodity prices pushed stocks to the brink of a bear market.

Hedge funds declined by an average 0.7 percent in June, bringing the year-to-date loss to 0.75 percent, data compiled by Hedge Fund Research Inc. show. It's the worst start to a year since the Chicago-based firm began tracking returns in 1990. The $1.9 trillion industry has posted one losing year, in 2002, when funds fell 1.45 percent amid the 23 percent decline by the Standard & Poor's 500 Index."

zdreg · Jul 17, 2008

both makloda and covert refuse to recognize that hedge funds as a class are inferior investment vehicles because of fee structures and tax consequences. adding layers of fees is no different from buying on the offer and selling on the bid.the resultant friction costs and draw downs from excessive leverage will result in poor long term performance.
the idea that hedge funds as a class are exempt from efficient market theory is ludicrous.
extrapolating from a few counter examples is an error in logic 101.

name calling is the refuge of people who don't have the facts to support their hypotheses.

makloda · Jul 17, 2008

Quote from Pekelo:
Hedge funds declined by an average 0.7 percent in June, bringing the year-to-date loss to 0.75 percent, data compiled by Hedge Fund Research Inc. show.

Outperforming the MSCI World USD Index by how much, something like +18% YTD? LOL

makloda · Jul 17, 2008

Quote from zdreg:
both makloda and covert refuse to recognize that hedge funds as a class are inferior investment vehicles because of fee structures and tax consequences.

Inferior investment vehicles for whom? Always depends on your investment goal. What you personally find are inferior risk/reward characteristics may be vastly superior to a wealthy individual or an institutional investor.

FerdinandAlx · Jul 17, 2008

Quote from zdreg:

both makloda and covert refuse to recognize that hedge funds as a class are inferior investment vehicles because of fee structures and tax consequences. adding layers of fees is no different from buying on the offer and selling on the bid.the resultant friction costs and draw downs from excessive leverage will result in poor long term performance.
the idea that hedge funds as a class are exempt from efficient market theory is ludicrous.
extrapolating from a few counter examples is an error in logic 101.

name calling is the refuge of people who don't have the facts to support their hypotheses.

Reality is exempt from efficient market theory, but alas, you have a point when it comes to friction costs from excessive leverage and fees.

Most hedgefund investor would do better if they just bought dividend paying bluechips and use the yield to buy OTM puts.