James Cramer briefly alluded to the ethical issues of having mutual and hedge funds managed under the same roof.
It would be great to hear more on the subject.
He has also mentioned, in the past, that hedge fund managers (1) sometimes communicate closely with one another, and (2) are very loosely regulated.
Please keep this sort of stuff coming. It is fascinating.
CNBC editors.... pardon me if I've missed any follow up. I've only listened to Cramer once since making that post, and he was dealing with pabulum on that occasion.
I am not critical of CNBC's role in bankrupting the retirement of America's common man during the dotcom, etc. collapse. It was obvious that most of your on-air personnel were sending a "this is a bubble folks" message, between the lines if not more directly. The daily warnings were palpable.
However, you're now doing retrospective on the damage and the damage control. You do your silly little bandage thing where you ask the fund managers if they're dirty or clean at the end of every interview, and you spend an entire day commenting about one crook or another.
Why not get ahead of the curve, this time? What are the forces that are contributing to this inverse bubble? Who is pocketing the profits? To what degree is the little guy/gal getting hurt again? Etc., etc.
Come on, CNBC managers! To what degree does communication between mutual fund managers and hedge fund managers occur? If it does occur, who gets hurt apart from sincere investors who believe that they've found an undervalued gem? Is fundamental analysis worthless in this world where fund managers push stocks around, aware of what the "competition" will not do? Has the SEC looked to see if "friends and relatives" (a Martha, a parent, whoever) of mutual fund managers have short positions and/or puts in interesting places?
AHEAD OF THE TAPE
By GREGORY ZUCKERMAN
Staff Reporter of THE WALL STREET JOURNAL
Will the hedge-fund craze end badly? The concern is obvious: Investors are pouring money into hedge funds just as they stampeded into Internet and telecom stocks two years ago. Pessimists worry this investment craze may have the same ugly outcome as the last one.
Clearly, if the hedge-fund world cratered, it wouldn't be just the super-rich who would suffer. Brokerage firms and banks have been working on ways to broaden the investor pool, developing ways for the "just wealthy" to put their money in. The amount of money in such funds -- which use borrowed money to amplify returns in their investments -- has almost doubled, to $563 billion, from two years ago. Inexperienced managers are launching funds, while others are dealing with more money than ever before. And they're all using borrowed money to charge up their returns.
That's what is setting off alarms. But for now, at least, the worries seems premature.
Most hedge funds aren't using anywhere near the leverage they embraced just a few years ago. And many hedge-fund managers are beginning to reveal more about the true risks of their portfolios.
In fact, hedge funds may be the best bet in a slumbering market. Unlike most mutual funds, hedge funds can make big bets against stocks, or even shift entirely into cash. And they can help diversify a typical stock and bond portfolio. Last year, the average hedge fund rose 4%, compared with a loss of 13% for the S&P 500 index. The performance will likely slip, with more hedge funds entering the market, but returns could continue to top stocks.
The fear is that if hedge-fund managers, under pressure to beat the market and to justify the hefty fees they are charging, begin piling on the leverage and making bigger and riskier bets, it could jeopardize the market. A surge of recent cases of managers fabricating their returns to cover up lackluster returns may be the first sign of problems.
The key will be whether the Securities and Exchange Commission can overcome industry objections and force hedge fund to reveal even more to investors. If that happens, the inevitable blowups that result from the hedge-fund craze won't be big enough to rock the overall market.
Send questions or comments to tape@wsj.com.
(thanks, Bones, for the ZUCKERMAN article) |
