Comments on: The Journal Tells Us Now That Hedge Funds Shop for Valuations? http://www.nakedcapitalism.com/2007/10/journal-tells-us-now-that-hedge-funds.html Mon, 23 Nov 2009 10:17:20 -0500 http://wordpress.org/?v=2.8.4 hourly 1 By: a http://www.nakedcapitalism.com/2007/10/journal-tells-us-now-that-hedge-funds.html#comment-1014 a Tue, 09 Oct 2007 07:55:00 +0000 http://www.nakedcapitalism.com/2007/10/the-journal-tells-us-now-that-hedge-funds-shop-for-valuations/#comment-1014 There is only ancillary risk to the system created by hedge funds misvaluing. The class of people being swindled (namely investors in hedge funds) are supposed to be sophisticated - if they are dumb enough to put their money into funds which can shop around in order to boost the fund manager's performance fee, then that would seem to be their problem.<br/><br/>Risk to the financial system comes only when such opaque instruments are used as collateral. This is then a prime broker problem (or whoever is lending money to the hedge funds using collateral of hard-to-value instruments). If the prime brokers are accepting the word of the hedgies, then they need their heads to be examined (hopefully by the appropriate regulator). There is only ancillary risk to the system created by hedge funds misvaluing. The class of people being swindled (namely investors in hedge funds) are supposed to be sophisticated – if they are dumb enough to put their money into funds which can shop around in order to boost the fund manager’s performance fee, then that would seem to be their problem.

Risk to the financial system comes only when such opaque instruments are used as collateral. This is then a prime broker problem (or whoever is lending money to the hedge funds using collateral of hard-to-value instruments). If the prime brokers are accepting the word of the hedgies, then they need their heads to be examined (hopefully by the appropriate regulator).

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