An solid article by John Cassidy in the New Yorker, “Hedge Clipping,” on the work of former equity derivatives trader turned academic Henry Kat, who researched hedge fund performance extensively and concluded 80% of them fail to earn their handsome fees (in industry jargon, whatever alpha they generate, which is the excess return due to […]
Read more...An article in the Financial Times, “High risks see super-rich pull away,” reports on a Merrill Lynch/Cap Gemini study that concludes that the super rich ($30 million or more in investable assets) are getting richer even faster than the merely rich ($1-$5 million). The world’s 100,000 “super-rich” last year extended their lead over the merely […]
Read more...Credit Slips highlighted a recent Hudson Institute paper by Joseph Mason and Joshua Rosner, “Where Did the Risk Go? How Misapplied Bond Ratings Cause Mortgage Backed Securities and Collateralized Debt Obligation Market Disruptions.” It’s an excellent piece of work, and I recommend it to anyone who wants to understand more about the risks of mortgage […]
Read more...A good post from John Hussman at Seeking Alpha. He thinks we are on the verge of a sharp and overdue correcttion: In the microscopic focus on day-to-day fluctuations in the market, it is easy to overlook how unusual — specifically, unusually unfavorable — current market conditions are from a long-term historical perspective. The S&P […]
Read more...It continues to be lively on the Bear Sterns front. As readers doubtless know, two Bear Stearns sponsored hedge funds run by Ralph Cioffi that focused on subprimes had trouble meeting margin calls and went into liquidation. On the one hand, the Wall Street Journal appears not to be putting it on the first page […]
Read more...A good article in the American Prospect by Barbara Dreyfus gives an overview of the state of play in the hedge fund industry and reviews the causes (considerable) for concern. The article is very much for the generalist reader and misses some points that are important (for example, the role of leverage in most hedge […]
Read more...We observed that the sharp fall in the bond markets Thursday, which was triggered not by news, but by a collective recognition that credit was too cheap, seemed to many to be an inflection point, an end of a long cycle of falling interest rates. This development is important not just for fixed income investors, […]
Read more...If a terrorist were to blow up Moodys, S&P, and Fitch, it would have a devastating impact on the financial markets. Rating agencies play a indispensable role in the debt arena. Many investors are required to consider bond ratings in their investment decision making process. Insurance companies, for example, are required to hold either all […]
Read more...This post from Conglomerate (a blog I generally like) is an articulate rendition of an appallingly conventional line of thinking: This Sunday’s Washington Post featured a story on the increase in socially responsible investing over the last decade…. According to the Washington Post, over the past decade the number of socially responsible investment funds has […]
Read more...Felix Salmon thinks so: Sitting on the property panel with Bob Toll was Steven Green, of Greenstreet Partners. He had a very good explanation for the run-up in US property values in recent years: financial derivatives. “People always told you that there was no liquidity in real estate,” said Green. “And now the financial derivatives […]
Read more...It’s one thing when people who have little to no experience in the financial markets worry about the risks posed by derivatives and other innovative financial products. It’s quite another when a concerned individual also happens to have been deeply involved in risk management at major Wall Street firms. The financial markets insider is Richard […]
Read more...A Financial Times story tells us that Japan is contemplating creating a special state investment fund that would be an active manager, along the lines of Singapore’s Temasek. If it comes to fruition, this development would be a major shift, since it would be far and away the biggest and most influential fund of that […]
Read more...Ha. We were suspicious in back in 2005 when Edhec-Risk, an asset management research company, issued a report, “Hedge fund industry: is there a capacity effect?” which examined whether various hedge fund strategies were becoming too crowded for the managers for the managers to earn excess returns. And excess return (meaning earning more than the […]
Read more...As we’ve pointed out, if one is the worrying sort, hedge funds give plenty of reason to concentrate the mind. It’s not just that they are highly leveraged, unregulated, big, and getting bigger. The Fed has also admitted it doesn’t know what they are up to, which means their reassurances aren’t fact based (how can […]
Read more...Supposedly, the reason that sophisticated investors like pension funds and endowments pay 2% management fees and 20% upside fees (and sometimes more) to hedge funds and private equity funds (and higher-than-index-fund fees for long equity managers) is that they are buying “alpha,” which is the manager’s ability to beat the relevant market. (To be more […]
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