Because I just read this off a hedge fund letter "We might invest up to 40% of our net worth in a single security under conditions coupling an extremely high probability that our facts and reasoning are correct with a very low probability that anything could drastically change the underlying value of the investment."
It would be fine with me as long as it was consistent with their mandate and the reasons I chose to invest in the first place. ...if it's a large cap tech fund designed to trade with a similar vol to the index and now they're putting 40% on bitcoin to capitalize on next week's fork, I'd say fork no.
As long as all the investors are happy with the possible losses implied by this sort of risk management approach, it's all good... Horses for courses and all that jazz.
I think Buffet put 40 per cent of his fund into Amex or Washington post or coke or something years ago. Turned out pretty well. Is this hedge fund the same calibre as Buffett though?
Fwiw, I do also think large concentrated funds or trades are a bit silly for clients. Ackmans target fund is a example, if I'm a client, I'll just go out and buy calls on Target myself, no need to pay to have that structured in a fund. Yes, clients pay for the ideas, but also for the portfolio mgmt and access to things they can't do themselves.
I'd say that the range of approaches among hedge funds is even wider than I'd imagined. But as Martinghoul says above, as long as all the investors are happy with the possible losses implied by this sort of risk management approach, then it's ok, I suppose. (I wouldn't be investing in it, myself, though.)
Saw an investor on CNBC one time who said his family had some "hundreds of $Millions", and they put it all into 2 stocks.... with the approach, "put all your eggs into one basket, then watch that basket".