A lot of hedge funds have invested heavily in home builders and have been getting hurt lately. I think Jim Cramer may have tried to help out a few of his old Goldman Sachs buddies by saying that the home builder stocks are starting to look way too cheap.
If the manager doesn't do well, they don't earn incentive fees. Management fees cover overhead- unless it is a huge fund the managers are not getting rich off of it. Therefore, the interests of the manager are aligned with the investor- i.e. the investor makes money, the manager makes money. Most PMs manage risk very well, occasionally you have a blowout or bad trade, same as you daytrading guys, but on a larger scale....
I agree to a certain extent. But there is an inherent conflict of interest there, which is why hedge funds are restricted to accredited/sophisticated investors. True, management fees won't make any significant money, but the managers have a lot to gain and very little to lose by taking too much risk. I think that for the most part they want to perform well, but the way the fee schedules are setup promotes excessive risk taking to a certain extent.
Yes, it's like an option. High volatility/high risk is always good to the holders( in this case the fund managers).
About time. And I bet the commodity longs who pyramided are getting crushed by gold today. A lot of wealth being lost recently.