An evaluation

For quite some time managing other people’s money has been a very profitable occupation, particularly for those who do so via hedge funds which have not been all that rewarding.

Hedge funds, comprised of regular shares, are bought or sold through short sales of shares of questionable value. Stocks under management in hedge funds have reached $78 trillion, which could reach $100 trillion in three years in spite of poor performance.

Managers of hedge funds reaped huge salaries.  The returns for hedge funds are based on market benchmarks or indexes, so that should entitle them to charge big management fees. Most funds fail to perform that well.

Too, financial regulators now review funds’ activities and are beginning to dig to disqualify some activities. The weak performance is prompting more investors to choose their own paths, often picking new funds or managing their own portfolios.

Hedge funds now are desperately selecting investments of dubious quality to get ahead of the pack, but that could lead to major disasters.  Managers are investors who increasingly are discovering nowadays that stocks may look cheap on paper, but a thorough investigation is required often to confirm that.

A trend in recent years is for hedge funds to lower their management fees, but that could entail a “trade war” that hurts everyone. 

Too, what are needed are experienced economists not in the industry who can see troubles looming ahead. What is urgently required is for government to report investment performance compared to the market indexes and the relative performance of the funds, all on a regular basis.  Such an evaluation could be very helpful.

It transpires that the performance of hedge funds has been dismal. That could cripple the hedge funds industry to make its fee schedules unjustified.

The best alternative is for investors to utilize ETFs (Exchange Traded Funds), funds based on market averages. However, this columnist is not sanguine of the market outlook. 

So, a sizable investment should be in gold for ultimate safety.  The more enterprising investors could just choose a group of leading companies’ stocks and hope that in the long run that will work out satisfactorily.

 

 

Bruce Whitestone

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