I know it’s a cliché, but I’m going to write it anyway: I’m mad as hell and I’m not going to take it anymore.
I really just don’t know what else to say about what’s going on with hedge fund performance this year. The third quarter of 2008 is quickly coming to an end, and for the most part, hedge fund performance is abysmal. It looks like both the equity and fixed income managers are taking it on the chin. I have seen some funds down over seven percent, some down more then 20 percent and a number somewhere in between. The numbers are all over the map and really very poor.
It’s like a grisly car accident: I now for the first time in my life understand why people rubberneck on the highway. I can’t throw my hands up in disgust, I can’t turn off the television, I can’t turn off the radio, and I can’t stop reading newspapers, because I just can’t get enough of it.
Unfortunately, it doesn’t seem likely that the tide will change anytime soon. There are a lot of people out there masquerading as hedge fund managers who, in reality, are doing nothing more than running expensive mutual funds. Simply put – they are not hedging!
I don’t blame these managers, though. They wouldn’t have assets if they did not investors making investments.
That’s right: I blame the investors, specifically unsophisticated investors. It is their fault and theirs alone. These people all want to have a bit of the apple – the forbidden fruit. Well guess what, there is a reason it was forbidden. It’s a bit of the reverse of the Garden of Eden story: In the case of hedge funds, the fruit is forbidden until you have the knowledge necessary to eat it.
But that’s not what unsophisticated investors want to hear. Every time, I go out to a cocktail party or every time I go out to an event, all I hear about is hedge funds. First the conversation is about how speculators are driving the cost of oil through the roof and wreaking havoc in the stock market. Then the name game starts: Who do know? How can I get access to that fund?
Having a the cash and the name of the hot new fund isn’t good enough. In fact, it’s probably going to hurt you. Hedge funds operate in the ether. Therefore it’s much more difficult to determine if there is any real value in investing in a particular hedge fund. Forget the hot name. Read the documents and perform due diligence. Ask questions and get answers – understand what is going to happen to your money once it is wired into the fund’s bank account.
So, as the third quarter draws to an end, and you’re thinking about your plans for 2009, all I can say is remember to perform thorough due diligence. Find out if it is worth it. Gather as much data about any given fund manager from multiple sources.. Review the audit; get a background check on the manager. Talk to other investors. Ask questions and make sure you get answers. It is your money make sure you know what is happening to it!
HedgeAnswers Chicago is Monday. It’s going to be great. I hope to see you there. Learn more at www.hedgeanswers.com.