Comments on: Another Reason to Avoid Hedge Funds

By: Hedge Fund Lists

Hedge Fund Lists — Thu, 13 Nov 2008 01:43:39 +0000

For those looking not to invest in hedge funds, but rather to work for hedge funds there are some great lists available at http://www.hedgefundjoblist.com

By: This and That

This and That — Fri, 18 Apr 2008 10:52:06 +0000

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By: Noel

Noel — Tue, 15 Apr 2008 17:38:55 +0000

Further to Robillard’s last comment, Mr. Pabrai’s fund is publicly available and open to unsolicited investment from the general public. You just have to contact him and he’ll take your money (assuming you meet his minimum investment requirement).

By: 148th Edition of the Carnival of Personal Finance!

148th Edition of the Carnival of Personal Finance! — Mon, 14 Apr 2008 17:11:08 +0000

[...] Capitalist presents Another Reason to Avoid Hedge Funds – Canadian Capitalist does some reasearch into hedge fund compensation and finds that it is [...]

By: Canadian Capitalist

Canadian Capitalist — Mon, 14 Apr 2008 04:13:05 +0000

Hi Richard: Thanks for your comment. I refer back to David Swensen’s Unconventional Success who suggests that individual investors simply don’t have the resources to identify high-quality hedge funds that sophisticated institutional investors have.

Here’s what Warren Buffett told a group of business students in 2005:

“I’ll tell you what I think of hedge funds. Hedge funds are a huge fad. You can pick any ten hedge funds and I’ll bet that on average they will underperform the S&P over the next ten years. You can’t create more money out of American business than the business itself creates; so most of these hedge funds will not be able to justify their outlandish fees over the long-term and they will disappear. On Wall Street, there are innovators, imitators, and total incompetents. I’m afraid that the majority of hedge funds around the globe now are run by the latter two categories of people.”

To paraphrase Mr. Buffett, what chance do individual investors have of telling the innovators apart from the imitators and incompetents?

By: Richard Wilson

Richard Wilson — Sun, 13 Apr 2008 15:45:31 +0000

Yes not every retail investor should use hedge funds and not every hedge fund offers solid investment opportunities. I think there are reasons why though after investing in hedge funds for 7-10 years now most institutions and ulta-high-net-worth individuals are increasing their allocations to hedge fund managers. Newspapers make it seem like they are all blowing up left and right but I have yet to meet a single journalist who worked in or anywhere near the hedge fund industry.

- Richard
Hedge Fund Consulting Blog
http://richard-wilson.blogspot.com

By: Weekend Reading - April 12, 2008 | Million Dollar Journey

Weekend Reading - April 12, 2008 | Million Dollar Journey — Sat, 12 Apr 2008 09:31:36 +0000

[...] Canadian Capitalist gives us another reason to avoid hedge funds. [...]

By: Prime Time Money: Canadian Roundup | Prime Time Money

Prime Time Money: Canadian Roundup | Prime Time Money — Sat, 12 Apr 2008 02:31:03 +0000

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By: Robillard

Robillard — Thu, 10 Apr 2008 05:08:08 +0000

Noel,
From the research I did two years ago for the period 1994- Feb 2006, on an annualised basis, I found that the Sharpe Ratio on the market portfolio was 0.43, that of the S&P 500 was 0.327, and a bond fund I deemed representative of the investment-grade bond category had a Sharpe Ratio of 0.305. By comparison, the CSFB/Tremont Hedge Fund index over that time had a Sharpe Ratio of 0.736. Different hedge fund strategies had wildly different returns to risk though. Nevertheless, as an asset category, for that time period, hedge funds offered better excess returns to risk as measured by standard deviation. This says nothing about hedge fund performance now though.

As for the statement I made about all pooled investment vehicles having management fees. I guess I stand corrected. Though it does appear that Mr. Pabrai’s fund is not open to unsolicited investment from the general public. My statement should have been limited to publicly available mutual funds.

By: Noel

Noel — Wed, 09 Apr 2008 23:34:50 +0000

Ok well I guess your manner of writing is a bit hard to decipher! But I still don’t see the evidence of hedge funds having superior risk adjusted returns.

In any event, the issue of management fees cannot be a non-issue, simply because there are many examples of pooled investment vehicles that do not charge management fees, such as Mohnish Pabrai’s fund, which only has a performance fee if the returns are greater than 6%.