<p>The name “hedge funds” is a misnomer for many of these funds.</p>
<p>Peter Thiel…come on…I think he was running 6 billion…now less than 1 billion…</p>
<p>Gambling with other people’s money…</p>
<p>Kind of like Harvard…</p>
<p>You have to start another fund when you are underwater…otherwise you don’t get those 20% of the profits…</p>
<p>The big difference between hedge funds and mutual funds seems to me is the incentive system. 2 and 20 is a recipe for making risky,leveraged bets. Take a look at Harbinger Capital if you want to see another example of a very large fund following the same course.</p>
<p>[Hedge</a> Fund Manager Sued By Employees Re: Topless Photos Is Sued Again Dealbreaker: A Wall Street Tabloid – Business News Headlines and Financial Gossip](<a href=“http://dealbreaker.com/2010/12/hedge-fund-manager-sued-by-employees-re-topless-photos-is-sued-again/]Hedge”>http://dealbreaker.com/2010/12/hedge-fund-manager-sued-by-employees-re-topless-photos-is-sued-again/)</p>
<p>Another example of the kind of quality people running hedge funds nowadays. The fact that his investors have lost 74% of their money seems to be the least of his problems.</p>
<p>Interesting link sm74.</p>
<p>Quite a few interesting characters.</p>
<p>"Tradex’s interest in Titan’s fund lost another 53% in September, the court document says. Tradex, which is seeking $1.4 million plus interest from Titan Capital, claims Titan and Abrams committed fraud and negligent misrepresentation for misleading Tradex into making new investments in Titan and holding on to its positions with Titan’s fund.</p>
<p>Tradex Global Advisors is the Greeenwhich, Ct., investment advisor for Tradex Global Master Fund. It’s managed by Michael Beattie and part of Tradex Capital, which claims to manage $2.2 billion through three global investment management companies. Tradex has not been shy about suing funds. Tradex got caught up in Thomas Petters’ $3.7 billion Ponzi scheme and sued Petters feeder funds in which it had invested. Tradex also sued Southridge Capital Management, which recently was the subject of civil enforcement actions by the Securities & Exchange Commission and the Connecticut Attorney General, partly over investor redemption issues that have also frustrated billionaire investor Leon Cooperman. “They don’t go around suing the moment a redemption isn’t paid,” says Vivian Drohan, Tradex’s lawyer, adding that Tradex had sued a small percentage of its portfolio’s investment managers."</p>
<p>I am assuming that Tradex has done a good job investing money and that Titan and Petters are exceptions.</p>
<p>And Titan appears to be a large gambling house.</p>
<p>Bondholders have gotten killed in the last couple of days. Bond prices have taken a large hit.</p>
<p>Investors have been throwing money into bond funds for 3 years.</p>
<p>I wonder which hedge funds owned bonds with leverage…and which endowments have money with these hedge funds.</p>
<p>How do you lose 53% in one month?</p>
<p>long put options…long put spreads…short calls.</p>
<p>Since, from the article, it sounds like the firm was long premium…</p>
<p>I think it is a pretty good guess that the firm was long puts, or put spreads and those products were crushed as the market rallied in Sept.</p>
<p>Options can drop in value pretty fast. </p>
<p>I have had that happen to me myself. Haven’t lost 53% in a month though…that is not really fiscally prudent. ;)</p>
<p>That firm is ridiculous…</p>
<p>But just think… if the market was crushed…the puts would have increased exponentially in price…and like you said…the returns would have been great and investors would flock to the fund…and the fund manager would be on CNBC, and the broadcasters would kiss his a@@, and everybody would think he was a genius…when all he was…was a gambler of other people’s money…</p>
<p>And the fund would eventually lose…</p>
<p>[Insider</a> - NYTimes.com](<a href=“http://dealbook.nytimes.com/2010/12/08/an-insider-case-of-life-borrowing-from-art/]Insider”>Insider - The New York Times)</p>
<p>Now we have confirmation of just how stupid and brazen some of these hedge fund people are–to carry out their insider trading scheme they used code words from of all places the movie “Wall Street”. You can’t make this stuff up.</p>
<p>I can’t get too worked up over this insider trading stuff. Catch’em, punish them, and move on. Its been happening forever, and will continue. In the late 60’s and early 70’s there was a period of fraud and insider trading. Four seasons nursing home, Equity Funding, and others. Plenty of books written, but you can’t change human nature.</p>
<p>One reason that univerisities have problems is that they are like most organiziations. THey are filled with financially ignorant people. And that is interesting since they are supposed to know what you are supposed to know. It would be useful to the nation and society if accounting were taught as a language (which it is, in a certain sense) so that discussion of business and investment issues would not be so bifurcated between experts and the ignorant. [ps. not referencing anyone here.]</p>
<p>Buffet wrote in one of his letters several years back about how it didn’t make sense to make all your investments through hedge funds. Of course, Berkshire Hathaway is the public remnant of Warren’s original investment partnership, which was in fact a hedge fund as it is broadly defined today.</p>
<p>[A</a> Stronger Secondary Market in Private Equity - NYTimes.com](<a href=“http://dealbook.nytimes.com/2010/12/09/a-stronger-secondary-market-in-private-equity/]A”>Stronger Secondary Market in Private Equity - The New York Times)</p>
<p>Some very interesting facts on what is happening with PE calls and exits. Says that calls for cash was 9.4% of commited capital in the first half of 2010 compared to 5.3% for all of 2009–a huge ramp up in demand for cash from endowments. Says distributions or exits are just 3% of committed capital up a little from 2% in 2009.</p>
<p>Very interesting final comment,“the issue of undisciplined investment just to keep fees coming in is a real problem at underperforming firms where there is little prospect of raising follow-up funds”. The crazy bad PE structure allows the PE fund to charge a 2% annual management fee for 5 years while it is looking to invest the LP’s committment. At the end of the 5 year period if they don’t spend the money they lose that 2% fee, but if they spend the money they keep the 2% fee coming in.</p>
<p>Good deal for the PE firms…</p>
<p>The next part of the crazy bad PE structure as I understand it is that now that the fund has found an investment to keep the 2% rolling in then it needs to hold on to the investment to keep the 2%. If it sells it or even worse if you hand over the keys to the bank you lose the 2%. So you spend more of your investors money to buy down and extend the debt even though the investment has no chance of recovering. Happening alot-particularly in real estate. That 2% represents $100M a year to $5Billion funds-alot of money to walk away from.</p>
<p>[Private</a> equity in Europe: The lost continent | The Economist](<a href=“The lost continent”>The lost continent)</p>
<p>Interesting article on all the formerly major PE companies closing in Europe. </p>
<p>My favorite mis-leading comments coming from endowments of late are:
<p>^^^
Yes, it’s amazing how stupid many of these colleges think their alumni must be. Of course, these are also the same colleges that produced the ethically-challenged grads who drove Wall Street into a ditch. There needs to be some soul-searching at many levels.</p>
<p>Speaking of which, Swensen’s been kinda quiet what with posting an 8% return on the year. I guess he must not have a new book this year about what a genius he is. :)</p>
<p>[News</a> & Press - Zombie alert for buyout investors](<a href=“http://www.preqin.com/item/zombie-alert-for-buyout-investors/102/3215]News”>Preqin | Alternative Assets Data, Solutions and Insights)</p>
<p>Last 3 paragraphs talk to what happens when PE funds have no hope of raising a new fund. By the way article says that 50% of PE funds are in this situation.</p>
<p>I wonder why we need 1600 PE firms.</p>
<p>Seagate could not sell itself to a PE firm at a decent price, so now it is going to leverage the company itself. If shareholders don’t like it, they can sell.</p>
<p>And the shareholders get the upside if it works. And there aren’t all these fees paid to PE firms. And if you don’t have to pay the fees…you don’t have to leverage as much. And shareholders have liquidity…investors in PE don’t. Ok …shareholders might not always have liquidity at the price they want.</p>
<p>I really don’t get PE except for the fact that PE firms don’t have to worry
about quarterly earnings…that is a plus.</p>
<p>If what private equity firms are doing is so great, public companies should do the same thing.</p>
<p>my favorite line in the article is the last one “one would hope that moral obligation prevents someone from acting this way”–so private equity firms are going to give up their management fee because of a sense of “moral obligation”. Good luck with that one.</p>
<p>Yeah…</p>
<p>[Investors</a> Lose Almost Everything In BlueCrest Fund Of Funds | FINalternatives](<a href=“http://www.finalternatives.com/node/14896]Investors”>http://www.finalternatives.com/node/14896)</p>
<p>Good example of why one should be concerned when a hedge fund closes off withdrawals. Only on Wall Street can a company in reaction to this say “they needed different skills to maximize value” I guess the guy before thought they wanted him to minimize value.</p>
<p>How does a fund to funds company go broke? I thought these companies just place money into funds for fees or a small percentage of profits.</p>
<p>I guess the fees coming in don’t match expenses…but still…</p>