Hedge funds nab another $25bn
Yes, another $25bn into hedge funds in Q1, according to the FT. I've seen different estimates of total hedge fund assets in the last couple of days. Well, two estimtes. It's either $1 trillion or $1.5 trillion.
The long-awaited dampening of hedge fund returns happened at last. They said it was the GM downgrade that did it all, but really that's not the whole story. Convertible arbitrage was already over-arbed, to the point where it wasn't surprising returns became negative. Take a look at the Red Hat convert, says this old friend of mine. Came with some minimal coupon, like 0.5% or something and a huge premium, like 40%. How could the arbs make any money with those numbers? Well, apparently they couldn't, and the thing is now down in the 80s somewhere with a relatively reasonable premium.
Anyway, point is, the more assets go into hedge funds, the more difficult it is to beat the market, because the more you are the market. Here's the part that appeals to the cynic in me, though: fees. Hedge funds take 2% or 2.5% in fees (usually plus 20% of the "carry", ie upside -- but not of the downside, nts). That's a lot higher than for mutual funds. So now you've got (a) less than market returns (b) higher fees and (c) less transparency. Sounds like a great deal for all those guys taking money out of mutual funds and putting it with the savvy hedge fund managers, what?
The long-awaited dampening of hedge fund returns happened at last. They said it was the GM downgrade that did it all, but really that's not the whole story. Convertible arbitrage was already over-arbed, to the point where it wasn't surprising returns became negative. Take a look at the Red Hat convert, says this old friend of mine. Came with some minimal coupon, like 0.5% or something and a huge premium, like 40%. How could the arbs make any money with those numbers? Well, apparently they couldn't, and the thing is now down in the 80s somewhere with a relatively reasonable premium.
Anyway, point is, the more assets go into hedge funds, the more difficult it is to beat the market, because the more you are the market. Here's the part that appeals to the cynic in me, though: fees. Hedge funds take 2% or 2.5% in fees (usually plus 20% of the "carry", ie upside -- but not of the downside, nts). That's a lot higher than for mutual funds. So now you've got (a) less than market returns (b) higher fees and (c) less transparency. Sounds like a great deal for all those guys taking money out of mutual funds and putting it with the savvy hedge fund managers, what?
posted by econoclast at 5:57 AM
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