Wednesday, Aug 20, 2008
When the casino gets bearish
The Times: Hedge funds at a loss to cope with mood swing
The hedge fund group that took a huge bet on Northern Rock as it was imploding last autumn has reportedly lost 85 per cent of its investors' money, amid evidence of a terrible spell this summer for many hedge funds. SRM, the Monaco-based group that raised $3billion from investors in September 2006, is down by 85 per cent, according to The Wall Street Journal, including a minus 77 per cent performance in the past year. Tight lock-up terms prevent investors from withdrawing their money.
Posted by quiet guy @ 02:14 AM (850 views) Add Comment
13 Comments
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1. mark wadsworth said...
Those poor hedge fund managers! They'll have to make do with a 'management fee' of 2% x £3 billion and forego the performance fee.
Meanwhile, in the floor above, the managers of the fund who happened to take equal and opposite bets, the champagne corks are a-poppin' - those managers will earn 2% management fee and 20% of the profits.
2. Sneaker said...
In this light does the nationalisation of Northern Rock make the UK Gov't a hedge fund?
Brown & Darling, hedge fund managers?
3. inbreda said...
Hit the nail on the head there Mark. Hedge funds are a zero sum game. It is effectively a group of people gambling with each other, but with guaranteed winnings because they are playing with someone elses money. Here in the channel islands we have loads of these bozo good for nothings.
4. renting2 said...
Good editorial in last weeks Moneyweek that puts forward the case that these fund managers are either lucky or unlucky. This based on their individual long term performance, which is usually as bad in places as it is good in others.
5. jack c said...
@2. Sneaker - "Brown & Darling, hedge fund managers?" - you couldnt trust them with a hedge trimmer never mind a hedge fund.
6. shipbuilder said...
4. renting2 said...
"Good editorial in last weeks Moneyweek that puts forward the case that these fund managers are either lucky or unlucky. This based on their individual long term performance, which is usually as bad in places as it is good in others."
The Black Swan is a good read - has a lot to say on that subject.
If I remember, the logic goes that fund mangers in general are regarded as useful and 'skilled' because, like most things in life, you only hear of the success stories. Look into the statistics and as a group, these people rarely perform better than the average man in the street going on pure luck.
I'm sure many would disagree, though.
7. little professor said...
Oooh, investments in Nothern Rock, Bear Stearns and Countrywide Financial. The managers of this hedge fund should be shot.
8. mark wadsworth said...
Here's the best summary of hedge funds I've ever read by somebody who (I think) works for one.
9. d'oh said...
Yes...I had to listen to a friend of one of the managers of the hedge fund which bought heavily into NRK moan about the unfairness of it all. I was polite and didn't point out how he took a gamble that the government would socialise the losses and lost, and that he was a fool for believing that they were a going concern. Probably had something to do with the fact that I was prone in a chair and they had a dentists drill in their hand at the time. Some of the Surrey crowd really do vex me sometimes.
10. renting2 said...
mark wadsworth @ 8:
Love the summary!!
11. mken said...
renting2 @4
"Good editorial in last weeks Moneyweek that puts forward the case that these fund managers are either lucky or unlucky."
can you post a link to this article - sounds interesting.
12. still renting said...
The trouble with articles like this and the summary that Mark W. posted is that they lead people to believe that all hedgefunds are the same. They aren't. There are many types of HF as their are mutual funds. Market Neutral is a particular strategy which has fallen from favour recently because it doesn't make any money in crowded, liquid markets.
As someone who works for a multi-strategy fund that returned 35% to it's investors (after fees) last year, I don't hear our investors complaining about our fees or our performance. Sadly, I'm in IT, not on the investments staff, so no million pound bonus for me. :o(
Lastly, this today is from the NY Times. Starting a hedge fund is harder than it looks shows the pitfalls of an idiot thinking they anyone can start their own fund.
13. shipbuilder said...
Good find, Mark W - looks like his number 10 backs up my point as well.