Institutions reacting to poor hedge fund/private equity returns

20 Aug

As a partner in a hedge fund, we understand exactly what a “hedge” fund is – it hedges other investments so that when one investment tanks, there is a counter weight for it. When all boats rise, sometimes the “hedge” drags your return down, but it mitigates your risk.

Our hedge fund, [name left out since this is not a ad for that investment], was the number two fixed income return’er in 2008, 2009, and 2010 – 52%, 38%, and 27% [I believe, this might be incorrect but close, doesn’t matter since this isn’t an ad and doesn’t make reference to the fund]. In the years since, it has underperformed the market significantly because it is a “hedge”. The term and the “hedge” fund’s purpose in the world has been corrupted to the point of insignificance.


A couple of days ago, the Dealbook section of the New York Timesreported on a recent meeting of the Institutional Investors Roundtable in western Canada.

The purpose of the organization, founded in 2011, is to help large government-linked investment bodies, like sovereign wealth funds and managers of government employee pension plans, cooperate to solve common problems.

According to the NYT, the agenda of the latest meeting was hedge fund and private equity investments.  Although the proceedings are secret, it doesn’t take a genius to figure out what went on.

The institutions’ dilemma:  on the one hand, they want and need the diversification and the high-return investment opportunities that hedge funds and private equity promise.   On the other, despite their colorful brochures and persuasive presentations, many hedge fund/private equity ventures produce pretty awful returns.

There are two main reasons for this:

–some hedge fund/private equity operators are brilliant marketers…

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Posted by on August 20, 2013 in BLOG, Business


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