signs of hedgefund top

Discussion in 'Economics' started by dividend, Jun 28, 2007.

  1. Joe Ritchie had an edge.
    #11     Jul 12, 2008
  2. posted by OddTrader

    "The number of hedge fund start-ups in the United States fell by 50 percent in the first half of 2008 compared with the same period last year, according to The Absolute Return New Funds Survey, published in the July/August issue of Absolute Return magazine."


    About 40 percent of the $19.8 billion raised for new funds went to two Goldman start-ups — $7 billion in its Goldman Sachs Investment Partners, an equity long/short fund, and $1.1 billion in Goldman Mortgage Credit Opportunities.

    Investors apparently still have faith in Goldman, even though its Global Alpha fund fell 40 percent last year, losing more money than any other hedge fund in 2007. Global Alpha, run by Mark Carhart and Raymond Iwanowski, shrank to about $2.5 billion in assets from a peak of $12 billion after steep losses and customer redemptions. But it has done better this year, up 19 percent, according to Bloomberg News.
    #12     Jul 14, 2008
  3. Trader5287

    Registered: Dec 2001
    Posts: 1954

    08-19-08 11:00 AM

    August 19, 2008
    Running a Hedge Fund Is Harder Than It Looks on TV

    Do you remember a time, only a short while ago, when virtually anybody could start a hedge fund? It seemed so easy: billions of dollars were being thrown around like confetti, even at first-time managers. You could make money with your eyes closed. Or so it seemed.

    Ronald G. Insana was one of the people who chased that dream. Yes, that Mr. Insana — the man who spent more than a decade as one of CNBC's most prominent anchormen, interviewing some of the biggest titans in business and trying to make sense of the daily gyrations of the market.

    In March 2006, Mr. Insana left the network to try his hand at becoming one of those titans, setting up a fund to help investors get into hedge funds, a so-called fund of funds. Paul Kedrosky, the writer and investor, said at the time that Mr. Insana's announcement “reminded him a little of Lou Dobbs going to at the peak of the dot-com bubble.” Mr. Dobbs's adventure, you may recall, didn't turn out well; he's back on TV.

    Two weeks ago, Mr. Insana announced that he was throwing in the towel. Though his career detour doesn't rank on the flameout scale anywhere approaching the debacle, it is an unusually instructive and cautionary tale.

    One of the big raps against hedge fund managers is that their fee structure is so rigged that managers can get rich even if they never make a penny for investors. Eric Mindich, the former Goldman Sachs whiz kid, left the firm in 2004 to start Eton Park Capital Management and immediately raised more than $3 billion. His firm charged a 2 percent management fee and 20 percent of the profits with a three-year lock-up — handing him a $60 million paycheck before he even opened the door.

    But most hedge fund managers aren't like Eric Mindich. They don't start off with $3 billion and they don't put out their shingle with a guarantee of riches. Instead, they're like, well, Ron Insana.

    If there was one thing Mr. Insana had built up over the course of his career in journalism, it was great contacts. He knew everybody in the hedge fund business, which is why, when he started Insana Capital Partners, he chose to create a fund of funds.

    In his role as manager of Insana Capital Partners, he would act as a kind of hedge fund middleman, directing money to various hedge funds. The fund itself was grandiosely called Legends, which, while perhaps pretentious, made sense given the funds he could access. His clients would be invested in SAC Capital, managed by Steven A. Cohen; Icahn Partners, managed by Carl C. Icahn; or the Renaissance Technologies Corporation, run by James H. Simons, perhaps the most successful hedge fund manager on the planet. These funds are typically closed to the public.

    In exchange for getting his investors behind the velvet rope, he charged a 1.5 percent management fee and took 20 percent of all profits. That may not sound like a bad deal — but consider that those fees come on top of the fees charged by the hedge funds themselves. (In the case of Mr. Simons, in particular, the fees are astronomical: a 5 percent management fee and more than 40 percent of the profits.)

    Over the course of more than a year, Mr. Insana raised about $116 million. It was a respectable number, to be sure, but it wasn't $3 billion. And here is where Mr. Insana ran into trouble.

    As an investor, Mr. Insana didn't exactly have the wind at his back. During the 14 months his fund of funds was up and running, the Standard & Poor's 500-stock index fell more than 15 percent. While some hedge funds managed to eke out gains, many did not. Ultimately, Mr. Insana's fund lost 5 percent.

    In the mutual fund business, beating the S.& P. would be more than enough to survive, and even prosper. Mr. Insana would have been a hero. But the hedge fund business is far more cut-throat. For a small fund like Mr. Insana's, it is imperative to make money regardless of whether the S.& P. is up or down — and because he didn't, the 20 percent portion of his fee structure was worth nothing.

    That left his management fee, which amounted to $1.74 million. (That's 1.5 percent of $116 million.) On paper, that may seem like a lot of money. But it's not. Like many first-time fund managers, Mr. Insana was forced to give up about half of the general partnership to his first investor — in this case, Deutsche Bank — in exchange for backing him. After paying Deutsche Bank, Insana Capital Partners was left with only about $870,000.

    That would have been enough if it was just Mr. Insana, a secretary and a dog. But Mr. Insana was hoping to attract more than $1 billion from investors. And most big institutions won't even consider investing in a fund that doesn't have a proper infrastructure: a compliance officer, an accountant, analysts and so on. Mr. Insana had seven employees, and was paying for office space in the former CNBC studios in Fort Lee, N.J., and Bloomberg terminals — at more than $1,500 a pop a month — while traveling the globe in search of investors. Under the circumstances, $870,000 just wasn't going to last very long.

    Finally, most hedge funds have something called a high water mark. It requires hedge fund managers to make investors whole before they can start collecting their 20 percent of the profits — regardless of how long that takes. Hedge fund managers don't get to start from scratch every Jan. 1 the way their mutual fund brethren do.

    In the end, the rock was simply too heavy for Mr. Insana to keep pushing uphill. On Aug. 8, he sent a letter to investors explaining why he was closing shop. “Our current level of assets under management, coupled with the extraordinarily difficult capital-raising environment, make it imprudent for Insana Capital Partners to continue business operations,” he wrote. He said he planned to take a job with his pal Mr. Cohen at SAC. Mr. Insana declined to comment for this column.

    In truth, there are thousands of Mr. Insanas desperately trying to raise money from nondescript little offices across the country. Some of them raised $10 million, some raised $100 million or more. And, as money has gotten tighter, and the bloom has come off the hedge fund rose, some have raised none at all.

    Such was the case of Dow Kim, the co-president of global markets and investment banking at Merrill Lynch, who left the firm in May of last year to strike out on his own. With expectations of raising several billion dollars, he hired more than 30 people. Last week, he shuttered the business before he had even begun. In the coming months, Wall Street is going to be littered with such flameouts.

    Although the big boys get most of the ink, Mr. Insana's is a far more common story — and far more representative of what is happening in the land of hedge funds today.

    Mr. Insana probably should have seen it coming. In 2002, he wrote a book called, “Trendwatching: Don't be Fooled by the Next Investment Fad, Mania, or Bubble.” Oops.
    #13     Aug 20, 2008
  4. I'll know this bear market is over when I see MBA and "quantitative finance" running from their studies and switch majors to something like law, medicine, or even back to engineering.

    Same thing happened except in reverse during the tech bubble. Law, med, and business students ran to get computer degrees.
    #14     Aug 20, 2008
  5. you know your post looks like a bit of an ET cliche? 'Dumbass... you can make money in bear markets... what's wrong with you?'

    You're so clever for pointing this out.
    #15     Aug 20, 2008
  6. When I say bear market I mean a bear market in financial sector and hedgefunds, not all of the market. Not every stock goes down in a bear market and not all hedgefunds have to lose their a$$. I think there's a Great Depression in the financial sector happening that will conclude with massive unemployment.
    #16     Aug 21, 2008
  7. dsq


    Hahaha...another one bites the dust.
    Everybody thinks they're an expert.
    You can have the most intellectual market know it all experts and yet 95% of them cant make money in markets.I have come to the realization that playing the markets is 99% psychological.Not letting emotions control the timing of your executions/trades is more important than anything but the least studied aspect of trading.Without undestanding the emotional component of trading you are doomed.
    Mr insana,cramer and all those fast money idiots are perfect examples of this failure.Cramer is probably the most obvious example of how not understanding your emotions manifests surefire repetitious failure.
    Example:cramer called the july 15 lows in financials like fnm,fre as the beginning of a new bull market.He based this not on improving technicals or fundamentals just his gut feel(emotions).
    #17     Aug 21, 2008
  8. Cutten


    What about signs of a top in corporations? The bull market has been going for several centuries, it's a highly crowded field, anyone can start one with no qualifications. Surely the time to short corporations is now?
    #18     Aug 21, 2008
  9. Nine out of every 10 of the 4,000 hedge funds surveyed globally by data provider Eurekahedge are performing insufficiently well to beat their "high-water mark" - the level at which they can charge performance fees, equivalent to a fifth of returns.

    All but 3% of funds of hedge funds were under the mark, according to the survey, as were 90.6% of equity long/short funds, 86% of portfolios focusing on market events, 85.4% of those investing in distressed securities, and 82.6% of futures managers.

    The picture was also bleak for long-only absolute return funds, 96.5% of which were below their high-water mark. The survey used figures compiled for July 31 - the most recently available - and are likely to have worsened since then.


    Baggley said: "Most funds of funds are not performing very well, they are already stretching resources and a period of poor performance will not help them." Data provider Hedge Fund Research found 350 hedge funds were shut in the first half of this year, 15% more than the first half of last year, and setting the industry on course to beat last year's 563 closures.

    By David Walker and William Hutchings
    #19     Sep 21, 2008
  10. Third of Hedge Funds Face ‘Wipe Out’
    Dec. 15 (Bloomberg) -- Almost a third of hedge funds will shut or merge after the $1.5 trillion industry posted its worst ever performance this year, according to IGS Group, which advises hedge funds on raising money.
    #20     Dec 15, 2008