What is Not Said

What is Not Said About Hedge Funds

While looking for interesting posts for the hedge fund newsletter today I realized there are many topics not being discussed in detail. While there are 30 articles about how hedge funds never really hedged their investments and many more on assets losses few discuss these points:

Hedge funds have lost far less than the average bank. Banks are supposed to be the highly regulated and less risky vehicles here. This is important to note as more regulation is considered for the hedge fund industry. Joe the plumber has money with these banks in multiple ways through his 401K, mortgage, etc. He does not have any money invested in Perry Capital, DE Shaw or Renaissance Technologies.

There are 4 reasons why hedge funds are going to explode in growth and recover their losses in 2-3 years.

1. Hedge funds are sitting on cash right now instead of being able to grow it – this stalls their asset raising efforts right now and makes it more likely that investors will simply want their money back to manage their cash themselves.
2. Hedge funds have lost far less than the market, banks and in some cases real estate investments as well. Once the dust settles the daily headlines of fund closures will stop and the reports on how hedge funds have still be relatively outperforming their competitors will again be seen more often.
3. Investors are sitting on cash and will want to deploy that after the market turns around in 1-2 years. This may take a long time to happen, but when it does hedge funds will immediately see a 20% raise in their assets under management.
4. When the stock market does correct hedge funds will be there faster and in larger numbers than ever before. The hedge fund industry now has more technology, more competitors and more incentives than ever to outperform. When the bull market comes back does not matter as much as the fact that once it does hedge funds will be in line first capturing the most value for their investors.

This is not to say hedge funds are a great investment or something everyone should consider, but I hear hedge fund managers and marketers speak to the points above – yet rarely see this view within the mainstream media outlets.

Do you agree? Am I way off base from what you predict will happen? Please answer with a simple yes, no or explanation of your views below within the comments section if you have a minute.

Last 5 posts by Richard C. Wilson

• Hedge Fund Pitch Book | Marketing Materials - February 11th, 2009
• Hedge Funds and Private Equity in 2009 and 2010 - February 6th, 2009
• Hedge Fund Business Model Discussion | Video - February 4th, 2009
• Private Equity Regulation in Europe and America - February 3rd, 2009
• Prime Broker Market | Opportunities Challenges - February 2nd, 2009