<p>The managers of hedge funds can get paid whether the cap gains are realized or not…if the gains decrease…then there is the issue of high water marks…</p>
<p>Bcclintonk is correct…</p>
<p>Another very harmful aspect of PE incentives is what is happening around re-capitalizations. Some PE promoters will say there haven’t been a ton of bankruptcies from PE companies. Well, there are a ton of incentives to avoid bankruptcy. Once the company goes bankrupt the PE company no longer collect its 2% management fee on that investment, and it obviously has to write that investment down to zero.</p>
<p>Which is why you hear about so many PE companies re-capitalizing their debt. What they do is take more of the investors(endowment) money to buy down some of the debt in order to get the debt holder to extend the length of the loan. Net affect, they are poring more investor(endowment) money into a very troubled investment and in return they get to keep their 2% and hold off on writing off the investment.</p>
<p>Sm74…great posts…as usual.</p>
<h1>382 second paragraph, that sounds a bit like a ponzi scheme.</h1>
<p>[Private</a> Equity Exits Slow In Q4 | FINalternatives](<a href=“http://www.finalternatives.com/node/19038]Private”>http://www.finalternatives.com/node/19038)</p>
<p>PE exits drying up big time. Serious liquidity problem for endowments with 60-70% in PE and PE like investments.</p>
<p><a href=“http://www.preqin.com/docs/press/Private_Equity_Exits_Dec11.pdf[/url]”>http://www.preqin.com/docs/press/Private_Equity_Exits_Dec11.pdf</a></p>
<p>[Orchard</a> Brands Unit Sues Golden Gate Over $310 Million Dividend Payment- Bloomberg](<a href=“http://mobile.bloomberg.com/news/2011-04-27/golden-gate-sued-by-orchard-brands-unit-over-fraudulent-payment]Orchard”>http://mobile.bloomberg.com/news/2011-04-27/golden-gate-sued-by-orchard-brands-unit-over-fraudulent-payment)</p>
<p>Play with the Barbarians, you could end up as being the Xmas toy.</p>
<p>Banks were begging to bankroll these dividend payouts in the go-go years 2005-08 and countless PE funds took advantage and loaded up unmanageble debt on their buy-outs. One good reason why so few companies are exiting pe funds now.</p>
<p>Yep…post 388…</p>
<p>Bankers…never fail to do the wrong thing…</p>
<p>Bankers love to lend to industries that are ballooning…</p>
<p>And the PE guys…interesting model…suck out the cash of a company so they can pay themselves…</p>
<p>And if there isn’t enough cash…borrow the money…</p>
<p>PE, M&A, IB will continue to make money by making it for themselves first.</p>
<p>^^ CEOs aren’t that different, qualitatively speaking. Especially when they leave. Look at, e.g. [Janet</a> Robinson Exit Costs New York Times Over $15 Million](<a href=“Janet Robinson Exit Costs New York Times Over $15 Million | HuffPost Latest News”>Janet Robinson Exit Costs New York Times Over $15 Million | HuffPost Latest News)</p>
<p>Shareholders are usually the ones who get screwed.</p>
<p>[Ouch</a>, John Paulson’s Latest Performance Number Can Guarantee He Doesn’t Have A Happy Holiday](<a href=“http://www.businessinsider.com/ouch-john-paulsons-latest-performance-number-may-guarantee-he-doesnt-have-a-happy-holiday-2011-12]Ouch”>Ouch, John Paulson's Latest Performance Number Can Guarantee He Doesn't Have a Happy Holiday)</p>
<p>So this “hedge fund” guy is down 52% this year. Obvious question what part of "hedge"did
this guy forget about. Obvious answer-hedge funds have absolutely nothing to do with hedging - should be called gambling funds. Lost a billion dollars on a bet on sino-forest-a chinese timber fraud. Obvious question-what does this guy know about timber? chinese companies? Obvious answer - nothing.</p>
<p>Yes, a lot of serious wealth is being created in China, but the benefit has been really uneven for suppliers of capital.</p>
<p>I was going to say that the only sure winners – heads I win, tails you lose – have been high level officials, but even that is not true; those who end up on the wrong side of power struggles get “caught” on corruption charges, and are sometimes executed. Those who commit suicide first are said to “suffer from depression.”</p>
<p>[SEC</a> Ups Its Game to Identify Rogue Firms - WSJ.com](<a href=“SEC Ups Its Game to Identify Rogue Firms - WSJ”>SEC Ups Its Game to Identify Rogue Firms - WSJ)</p>
<p>Does apper as if SEC is going after hedge funds/private equity fraud. Towards the end," For Private Equity funds, SEC enforcement officials are zooming in on excessive valuations of fund holdings"</p>
<p>The way that private assets are valued leaves a lot to be desired…</p>
<p>Why are people like Kapur not tried criminally?</p>
<p>The argument hedge funds and PE fund make is that they are dealing with sophisticated investors so if a guy like Kapur rips someone of it is caveat emptor. Problem I have with that excuse is that there are really only 2 major investors in PE and Hedgefunds left- endowments and public employee pensions. High net worth people got out long ago. So its not sophisticated people who end up getting hurt. I appreciate the fact that the SEC is finally doing its job</p>
<p>Theoretically, the college endowments should be “sophisticated investors” – shouldn’t they be able to call their own college’s business and economics departments for advice?</p>
<p>I don’t think post 396 is true for hedge funds…</p>
<p>There are thousands of hedge funds…</p>
<p>But just because somebody has a high net worth doesn’t make them sophisticated either…</p>
<p>It is very difficult for an investor to know if an asset is mispriced…</p>
<p>Just because somebody is a business or economics professor doesn’t make that person an expert on valuations.</p>
<p>It has been a long time since I invested in a hedge fund. But when I did invest…if a company sold Private stock to a hedge fund at a buck a share …and then that company partaked in another round and sold stock at 3 bucks a share… that hedge fund could mark
that asset at 3 bucks a share and get paid a percentage of the profit of two bucks a share and also get their fees based on 3 bucks a share.</p>
<p>Then if that stock blew up…as most companies in the early stages do…the hedge fund managers got to keep that money that they were
paid; although, they had a high water mark they have to deal with… And they may not get paid a percentage of profits in the future unless they beat that high water mark. Of course, they still received their fees whether they beat their prior high water mark or not.</p>
<p>Some hedge fund managers…if they fall well below their high watermark…and therefore won’t get paid a share of profits…close the fund…and start a new one…so they can start over and get paid a share of profits.</p>
<p>Another thing my hedge fund manager did was…if an investor wanted out…he would allocate short term gains to that investor…and keep long term gains for himself and the remaining investors…</p>
<p>I was in a hedge fund in the 90’s. It made 9% compounded to the investor over maybe a five year period…Not bad except these were the late 90’s…;).</p>
<p>The hedge fund manager closed the fund when he was way below his high water mark…(i was glad). The hedge fund manager with the two and 20…ended up making 40 percent of the profits…much of those profits …long term…</p>
<p>Wonder if it is understood how much a school like Yale pays a select number of PE and hedge fund guys to manage their money.</p>
<p>Based on comitted funds and invested funds I estimate that they pay $300milion to $400 million a year in base management fees(doesn’t include profit participation). That doesn’t include what they pay the Yale saff.</p>
<p>
</p>
<p>Good question. </p>
<p>Possible answers;
Preponderance of evidence for conviction vs beyond reasonable doubt standard.
No Miranda protections, no unreasonable search protections, no 5th amendment protection (all of which apply in criminal cases).</p>