Posted by Matt Purdue
The NYT reported that investors are fleeing due to the unprecedented shakeout of hedge funds. There hasn’t been much good news about hedge funds lately, so there’s not much new here. But it is interesting to see the NYT take the woes of hedge funds to the front page last week. Of course, this being the NYT, the story smacks of proletariat palaver and beats the drum of class warfare without really reporting anything ground-breaking.
After we move past the NYT’s inherent bias, note a couple of things: the average hedge fund is down 17.6 percent this year. But keep in mind that the S&P 500 is down more than 40 percent in the past year. So hedge fund performance is actually pretty good. But funds are suffering because some investors are asking for their money back, choosing to put it in cash equivalents.
Despite the Times’ torches-and-pitchforks approach, institutional investors like pension funds and endowments will continue to use smart hedge funds as investment vehicles. With hedge funds beating stocks by 23 percentage points, it’s the wise thing to do.
Problem is, the Times missed two real stories here:
(1) If Democrats gain control of the White House, expect more hedge fund regulation in 2009.
(2) Hedge fund managers skim 20 percent of fund profits off the top. Did this emphasis on performance spur them to take unnecessary risks -- risks that, because hedge funds are so opaque, were hidden from investors in any way?
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