Very easy to manage a Long-Short hedge fund: Buy "New Century" short "Allied Capital" go out on TV write a book attacking the stock he shorted.
Does this guy really know something? Nothing! Otherwise he would not ride a stock down 90%. Now he looked through his broken glasses and found LEH. Maybe he is holding some CDO himself this time, think all other brokers are all in bad shape like his hedge fund. I suggest investors start to redeem shares.
Somehow he gathered $5bln in assets and had returns of +27% annualized over the last 10 years. How much do you manage and what are your returns? Case closed.
He has $5bln worth of CDO? Can he sell it? His position might worth less than $1bln if he closes all his position. My return for last 10 years is 75%, every fund manager can say that. He has no prove unless he can unload his position. BTW, last year he was flat according to the article. . You thought he is really smart about his famous short recommendation and fight against the small lender, turned out he is holding a similar bag. Now he suggests shorting LEH, what he is holding now? I have no prove how much he is holding now he can say he has 100% return for last twenty years, he has no prove how much LEH position worth.
You imbecile. He has long and short positions in mid & big cap US equities, not exotic debt instruments.
That means nothing. It's called leverage. Works during good times, until that major event hits and you lose everything. Geometric mean.... However, he does seem to be a genuinely good manager. I just don't think track records, without context, are the best measure, especially for only 5 years. Borrow 10X your equity and invest in CDO's....it worked for a while. Doesn't make it a good strategy.
Even when the laws of mathematics kick in and you blow half your investors' money, if you make 20% of the profits on a 27% return on any decent chunk of capital - getting paid annually without risking more than a small percentage, at most, of your networth, for ten straight years - you're set. You don't have to do anything. This is a scam business, if you can make your 8-9 digits in 10 years or less and then you lose 10 digits of money that's not yours in the 11th year does it matter?
It does matter if a large portion of the manager's net worth is tied up in the fund itself. I am sure most deep value guys place up to 80% of their own liquid assets in their own fund. Buffet, Einhorn, Lampert, Pabrai, Ackman, Loeb etc.