There has been much self-satisfied tut-tutting lately by many in the investment management and advisory business over what they perceive as the wholly justified fall to earth of the hedge fund industry. There’s good reason to feel such justification, of course: many hedge fund managers have made plenty of enemies on their way to the bank, gladly participating in the mythmaking apparatus that paints those managers as Colossuses astride the investing universe, jealously guarding the knowledge of their sacred holdings as they collected their two and 20. As the latest sorry numbers show below, in this bear market, nearly all the vaunted hedge fund strategies lost money in 2008, and the average hedge fund’s value fell 20% for the year, according to Hedge Fund Research Inc., led by the convertible arb strategy index, which dropped 57% for the year.
Moreover, Bernie Madoff is now the poster boy for why the Federal government should regulate hedge funds, which the Securities and Exchange Commission attempted to do before its registration requirement was voided by a Federal judge. President Obama supported legislation while in the Senate to rein in offshore hedge funds, and fellow co-sponsor Senator Carl Levin of Michigan is still pushing the bill. A survey of hedge fund managers conducted by Rothstein Kass & Company just after the November election found that 84% believed an Obama Administration would at the very least increase the cost of doing business because of greater compliance.
While no hedge funds have actually blown up, a number have had to delay redemption requests from their investors, which has annoyed said investors to no end, and just added to the list of challenges that hedge fund managers will have moving forward in attracting more capital and dealing with Capitol Hill oversight.
The Real Problem With Hedge Funds?