Unwinding of a Fund of Hedge Funds Position
Posted by Dan from Madison on April 14th, 2009
I made a mistake several years ago, but I didn’t know it at the time. It wasn’t a dreadful mistake, but one which I thought I would share with you to perhaps give some guidance and solicit some comments.
About 5 years or so I was sold on purchasing some shares (are they really shares?) of a fund of hedge funds. I will admit right off the bat that I didn’t know what it does, what it did, or how it works. I trusted my financial advisor as he told me that it was a great way to diversify my portfolio.
Last October/November I decided to look at every single one of my investments and decide if I needed to sell the position and rebuy (to take the tax loss) or to hold, or to simply sell. I decided that this fund of funds needed some investigation.
I called my financial advisor (I have a new one now, the old one who sold me on the fund of hedge funds washed out a few years ago) and asked him what this thing was exactly. He didn’t know. I asked him “who do I call to find out?” Apparently the guys who run these things are walled up in bunker-buster proof concrete buildings, far, far away from any method of communicating with their clients. After getting stonewalled a few times I just said something to the effect of “well if you can’t explain this thing to me, and I can’t ‘click’ on it to see what is inside, and I can’t call the guys who are running the damned thing, I don’t want it”. Thus began the unwinding procedure.
I was fortunate in that my fund of hedge funds had a pretty good return over the years (who the hell knows how, I sure don’t).
Last December I got the forms to cash this thing out and signed them. I am used to just calling up someone and saying “sell” or “buy”. Anyway, I signed and mailed the forms. A few weeks later, I received a letter from the fund of hedge funds people that may as well have been written in sanskrit. The managers of funds of hedge funds can and do communicate from on high!
I called my financial advisor and asked him what the letter meant, and he said that they are “unwinding my position”. “So, they are getting me my money?” “Exactly”.
That was in early December. It is now April and I have finally been notified that my ca$h will be deposited into my account within the week. Four MONTHS later!
Never again will I invest in a vehicle that I:
1) Do not understand
2) Can’t call someone to “buy” or “sell” it (I like liquidity)
3) Can’t “open up and see inside” - in other words, I want to click on it and see what it is and how it is doing.
I suppose that the wholesale investor is treated much better than a lowly retail investor such as myself, but still, if you open your vehicle to retail, you may want to at least invest in one or two people to deal with the uneducated (such as myself) on these matters. Or not?
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