The king is in the altogether…again and again…and again
Wednesday 9 April 2008
I like the phrase as I have used it many times and it is as true in the land of reality as it is in fiction.
A recent article in the FT by Vince Heaney on March 30 called “Era of fat fees/slim gains numbered”, discussed the fees charged by hedge funds. Yet it is not specifically that hedge funds that need to be targeted, but fundamentally actively managed funds. I have included below part of the article…I will let you read it and then I will pass comment.
“Martin Wolf, meanwhile, also writing in the Financial Times, recently argued that incentive structures of this sort encourage unscrupulous hedge fund managers to invest in strategies with a high probability of a modest gain and a low probability of huge losses in any period. Eventually, the low probability disastrous event will occur, but by then the manager has grown fat on his 2/20 rewards and no system of clawbacks exists for the repayment of losses. Hedge funds, essentially, are a scam.
Mr Wolf makes some good points, not least that it is hard to distinguish between talented and untalented managers. Indeed in recent years this problem may have become worse. The credit crisis has revealed that, during the bull market that preceded it, many managers were not generating true alpha. Instead they were taking advantage of exposure to “alternative betas”, such as the premia earned for the illiquidity of certain assets, which were under priced in the frantic search for yield. Investors should be wary of any manager touting a strong track record for 2002-06, who explains away losses in 2007 as “unavoidable” because of the wider market malaise.”
Well, I think someone could write a book based on these comments.
I want to ignore today whether hedge funds are a scam, but investors need to understand the comment made about distinguishing between talented and untalented managers. Every investor can be given a plausible reason why to invest with a particular manager, the marketing is always excellent but whether there is substance is a different matter. You have guessed it, the king is in the altogether again. As an investor you need to satisfy yourself that the manager can outperform and if you cannot, do not guess, use a different approach. Go a little more scientific.
Our approach to investing is based on science, not speculation. We do not make investment decisions with our clients' or our own money based on our personal "beliefs." Our disciplined investment management process is based on decades of objective financial research and removes emotional interference, providing our clients with fewer surprises and a smoother investment journey.
In that way, there is no need for the king to pretend he or she is something they are not.
Categories: Hedge Funds, Wealth Management
posted by Murray Round Wealth Management @ 16:25,
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Nicholas Round
Nic is the Managing Director of Murray Round Wealth Management Limited, who seeks to ensure the advice provided is truly independent. Based in Shropshire with clients local, national and worldwide, Nic has strived to find the best possible service for his clients needs, by researching and studying the market, trends and philosophies. Nic strongly believes Asset Class Management will bring his clients Financial Freedom, Independence and Happiness.
Kirsty
Kirsty is our communication guru. Managing information requires considerable due diligence and her passion for organisation gives the clarity we all seek. From Shropshire, with a Psychology Degree and much travelling, she is now back in Shrewsbury...and London often, keeping us all at Murray Round focused.
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