Comments on: 4 Reasons Why Investors Should Avoid Hedge Funds at All Costs http://www.bankaholic.com/finance/hedge-fund-risks/ Blogging about personal finance, foreclosures, mortgages, interest rates, and budgeting. Wed, 18 Nov 2009 03:45:46 -0500 http://wordpress.org/?v=2.8.4 hourly 1 By: Palin http://www.bankaholic.com/finance/hedge-fund-risks/comment-page-1/#comment-22149 Palin Mon, 04 May 2009 03:42:45 +0000 http://www.bankaholic.com/finance/4-reasons-why-investors-should-avoid-hedge-funds-at-all-costs/#comment-22149 I hate when hedge fund managers take unnecessary risk because it is not their money.The 2008-9 financial meltdown has made the public aware of what they do. I hate when hedge fund managers take unnecessary risk because it is not their money.The 2008-9 financial meltdown has made the public aware of what they do.

]]> By: Anonymous http://www.bankaholic.com/finance/hedge-fund-risks/comment-page-1/#comment-3337 Anonymous Thu, 11 Sep 2008 03:10:04 +0000 http://www.bankaholic.com/finance/4-reasons-why-investors-should-avoid-hedge-funds-at-all-costs/#comment-3337 This article is somewhat correct but should be titled, “4 Reasons Why an Unsophisticated Investor Should Avoid Hedge Funds”. Unfortunately, of the four reasons provided only the first seems to be accurate. The SEC assumes that if you are wealthy you should be sophisticated enough to perform the proper due diligence to determine whether a hedge fund is a sound investment and therefore do not need to be protected like a layman investor. If you are wealthy but really a layman investor, stick to a fund of funds. Points 2, 3 and 4 are silly. On point 2, if a manager performs poorly, investors pull their assets out of the fund and the manager is left with nothing. And investors in hedge funds are more demanding, as they should be given the fees they pay in expectation of alpha generating talent. On point 3, a large percentage of wealthy investors put their fate in the hands of wealth managers at boutique firms or in private client services groups at large institutions, ultimately relying on one or two individuals. At the end of the day, you should put your wealth in the hands of someone you trust and has the requisite experience. If you aren’t willing to do your homework on who invests your wealth, stick with cheap, diversified beta exposure provided through ETFs and index funds (which on a risk/return basis are far inferior to a hedge fund index or fund of funds). On point 4, registered investment vehicles also have short life spans. This is a better point for how most investors are too short-term focused and instead should be focused on sound, long-term strategies and results. Finally, when a talented manager chooses to manage investor’s assets through a hedge fund structure they are deciding what type of business they would like to run. The lightweight business structure of a hedge fund allows moderately wealthy investors to access manager talent that would otherwise only be available to larger institutions and family offices. Unfortunately, the moderately wealthy have to get in early before the funds grow too large and focus solely on the larger investors. If you take control of your fate and take the time to seek out the good managers though (and have the intellectual capacity to do so), the positives can far outweigh the negatives. This article is somewhat correct but should be titled, “4 Reasons Why an Unsophisticated Investor Should Avoid Hedge Funds”. Unfortunately, of the four reasons provided only the first seems to be accurate. The SEC assumes that if you are wealthy you should be sophisticated enough to perform the proper due diligence to determine whether a hedge fund is a sound investment and therefore do not need to be protected like a layman investor. If you are wealthy but really a layman investor, stick to a fund of funds. Points 2, 3 and 4 are silly. On point 2, if a manager performs poorly, investors pull their assets out of the fund and the manager is left with nothing. And investors in hedge funds are more demanding, as they should be given the fees they pay in expectation of alpha generating talent. On point 3, a large percentage of wealthy investors put their fate in the hands of wealth managers at boutique firms or in private client services groups at large institutions, ultimately relying on one or two individuals. At the end of the day, you should put your wealth in the hands of someone you trust and has the requisite experience. If you aren’t willing to do your homework on who invests your wealth, stick with cheap, diversified beta exposure provided through ETFs and index funds (which on a risk/return basis are far inferior to a hedge fund index or fund of funds). On point 4, registered investment vehicles also have short life spans. This is a better point for how most investors are too short-term focused and instead should be focused on sound, long-term strategies and results. Finally, when a talented manager chooses to manage investor’s assets through a hedge fund structure they are deciding what type of business they would like to run. The lightweight business structure of a hedge fund allows moderately wealthy investors to access manager talent that would otherwise only be available to larger institutions and family offices. Unfortunately, the moderately wealthy have to get in early before the funds grow too large and focus solely on the larger investors. If you take control of your fate and take the time to seek out the good managers though (and have the intellectual capacity to do so), the positives can far outweigh the negatives.

]]> By: Anonymous http://www.bankaholic.com/finance/hedge-fund-risks/comment-page-1/#comment-3145 Anonymous Fri, 29 Aug 2008 21:02:20 +0000 http://www.bankaholic.com/finance/4-reasons-why-investors-should-avoid-hedge-funds-at-all-costs/#comment-3145 Thanks for describing hedge fund investment for what it is, which is basically high stakes gambling. Your critics are either players or the ones rolling the dice, who are fighting against any oversight of their games while wanting to have unregulated access to investor funds(anyone with money or a retirement fund). Thanks for describing hedge fund investment for what it is, which is basically high stakes gambling. Your critics are either players or the ones rolling the dice, who are fighting against any oversight of their games while wanting to have unregulated access to investor funds(anyone with money or a retirement fund).

]]> By: Hedge Funds: Flash In The Pan? | Boom2Bust.com http://www.bankaholic.com/finance/hedge-fund-risks/comment-page-1/#comment-2961 Hedge Funds: Flash In The Pan? | Boom2Bust.com Thu, 14 Aug 2008 18:38:17 +0000 http://www.bankaholic.com/finance/4-reasons-why-investors-should-avoid-hedge-funds-at-all-costs/#comment-2961 [...] You can read the rest of the insightful article here. [...] [...] You can read the rest of the insightful article here. [...]

]]> By: Latest Good Reads | Tax & Accounting Blogs http://www.bankaholic.com/finance/hedge-fund-risks/comment-page-1/#comment-2898 Latest Good Reads | Tax & Accounting Blogs Tue, 05 Aug 2008 00:52:49 +0000 http://www.bankaholic.com/finance/4-reasons-why-investors-should-avoid-hedge-funds-at-all-costs/#comment-2898 [...] 4 reasons why investors should avoid hedge funds at all costs. [...] [...] 4 reasons why investors should avoid hedge funds at all costs. [...]

]]> By: Wealth Journey http://www.bankaholic.com/finance/hedge-fund-risks/comment-page-1/#comment-2888 Wealth Journey Sun, 03 Aug 2008 14:44:30 +0000 http://www.bankaholic.com/finance/4-reasons-why-investors-should-avoid-hedge-funds-at-all-costs/#comment-2888 Well, that is the thing with blogs. If you write well enough, you will be consider an authority. Even when you have no experience in the actual investment itself. Of course, it doesn't mean that if you have experience, you will be more qualified. But at least, I can say that I have tasted the apple and I know how it taste like. If it's a bad fruit, I will tell it like it is. Though I agree that investing into a single hedge fund is likely a high risk bet. However, if you invest in a fund of hedge funds, you will actually be able to reduce your risk as well as volatility quite a fair bit. I'm now currently 5% allocated into 2 fund of hedge funds and I can say that while the rest of my equity portfolio is negative, the fof is actually positive. And the total portfolio is only down around 0.6%. I'm sure the merits of a fof is that in a bear or sidewar market, it might outperform your long only strategy. But in a bull market, it might underperform your long only strategy. Well, that is the thing with blogs. If you write well enough, you will be consider an authority. Even when you have no experience in the actual investment itself. Of course, it doesn’t mean that if you have experience, you will be more qualified. But at least, I can say that I have tasted the apple and I know how it taste like. If it’s a bad fruit, I will tell it like it is.

Though I agree that investing into a single hedge fund is likely a high risk bet. However, if you invest in a fund of hedge funds, you will actually be able to reduce your risk as well as volatility quite a fair bit.

I’m now currently 5% allocated into 2 fund of hedge funds and I can say that while the rest of my equity portfolio is negative, the fof is actually positive. And the total portfolio is only down around 0.6%.

I’m sure the merits of a fof is that in a bear or sidewar market, it might outperform your long only strategy. But in a bull market, it might underperform your long only strategy.

]]> By: Bret http://www.bankaholic.com/finance/hedge-fund-risks/comment-page-1/#comment-2874 Bret Sat, 02 Aug 2008 16:11:58 +0000 http://www.bankaholic.com/finance/4-reasons-why-investors-should-avoid-hedge-funds-at-all-costs/#comment-2874 Outstanding article. You clearly presented the dangers of investing in hedge funds without demonizing them as an investment option. I think the substantial risks and fees of hedge fund investing have been swept under the carpet and the sucesses have been highly glorified. Now that there have been a couple of high-profile failures, hopefully the industry will act conservatively to avoid regulation. Right now, hedge funds are still a pretty risky proposition for investors. I also find the comments of the hedge fund people to be a little self-serving. It's hard to conduct due dilligence on investments that aren't transparent. And, judging performance on an average three year track record isn't very useful either. If hedge funds were such a great investment, they wouldn't be consistently going out of business. I wonder how much of their own money these commenters have intested in their hedge funds. My opninion is that hedge fund managers are profiting from the risk, instead of sharing it with investors. Outstanding article.

You clearly presented the dangers of investing in hedge funds without demonizing them as an investment option.

I think the substantial risks and fees of hedge fund investing have been swept under the carpet and the sucesses have been highly glorified. Now that there have been a couple of high-profile failures, hopefully the industry will act conservatively to avoid regulation. Right now, hedge funds are still a pretty risky proposition for investors.

I also find the comments of the hedge fund people to be a little self-serving. It’s hard to conduct due dilligence on investments that aren’t transparent. And, judging performance on an average three year track record isn’t very useful either. If hedge funds were such a great investment, they wouldn’t be consistently going out of business.

I wonder how much of their own money these commenters have intested in their hedge funds. My opninion is that hedge fund managers are profiting from the risk, instead of sharing it with investors.

]]> By: Narayana Rao http://www.bankaholic.com/finance/hedge-fund-risks/comment-page-1/#comment-2855 Narayana Rao Fri, 01 Aug 2008 07:50:12 +0000 http://www.bankaholic.com/finance/4-reasons-why-investors-should-avoid-hedge-funds-at-all-costs/#comment-2855 Professional portfolio, investment or trading managers are a reality in investment scene for a long time. As is mentioned in the article itself, hedge funds are for high networth individuals. It is assumed that they know the risks of trading and are handing over a portion their funds to a professional trader who is bound by common contracts and agreement law. If somebody complains to the SEC, SEC can investigate the funds. It does not prescribe on a regular basis, as in case of mutual funds. So a call for not investing in hedge funds is like a call not to do trading in the market. No body is going to listen. Hedge funds have come a long way to become an acceptable investment vehicle for institutional investors. Losses should not scare traders. They have to modify their trading strategies, tighten their money management strategies but should not run away. Well they man run away if they are convinced that trading is not for them anymore. Then they can become long-term investors through mutual funds or on their own. Professional portfolio, investment or trading managers are a reality in investment scene for a long time. As is mentioned in the article itself, hedge funds are for high networth individuals. It is assumed that they know the risks of trading and are handing over a portion their funds to a professional trader who is bound by common contracts and agreement law. If somebody complains to the SEC, SEC can investigate the funds. It does not prescribe on a regular basis, as in case of mutual funds. So a call for not investing in hedge funds is like a call not to do trading in the market. No body is going to listen. Hedge funds have come a long way to become an acceptable investment vehicle for institutional investors. Losses should not scare traders. They have to modify their trading strategies, tighten their money management strategies but should not run away. Well they man run away if they are convinced that trading is not for them anymore. Then they can become long-term investors through mutual funds or on their own.

]]> By: Dividends4Life http://www.bankaholic.com/finance/hedge-fund-risks/comment-page-1/#comment-2851 Dividends4Life Fri, 01 Aug 2008 00:28:32 +0000 http://www.bankaholic.com/finance/4-reasons-why-investors-should-avoid-hedge-funds-at-all-costs/#comment-2851 I see hedge funds as a disaster waiting to happen. Excellent read! Best Wishes, D4L I see hedge funds as a disaster waiting to happen. Excellent read!

Best Wishes,
D4L

]]> By: Carnival of 20-Something Finances - July 28, 2008 | Weak Wallet http://www.bankaholic.com/finance/hedge-fund-risks/comment-page-1/#comment-2844 Carnival of 20-Something Finances - July 28, 2008 | Weak Wallet Wed, 30 Jul 2008 19:19:45 +0000 http://www.bankaholic.com/finance/4-reasons-why-investors-should-avoid-hedge-funds-at-all-costs/#comment-2844 [...] Anderson presents 4 Reasons Why Investors Should Avoid Hedge Funds at All Costs posted at [...] [...] Anderson presents 4 Reasons Why Investors Should Avoid Hedge Funds at All Costs posted at [...]

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