If you can’t beat ‘em, join ‘em
Nov 29th, 2006 | Filed under: Hedge Fund Industry TrendsBill Gross has been somewhat anti-hedge fund over the years. For example, in his August 2004 commentary, he criticized hedge funds’ high fees and their use of leverage:
“..if you’re thinking about a hedge fund to bolster your portfolio returns, give it a long think. They’re risky and they’re generally overpriced…the growing fascination with hedge funds and indeed the ability to lever almost any asset at minimal borrowing costs which was the heretofore province of strongly regulated banks…the world’s economy is unstably founded on a base of cheap money used as leverage to support certain asset prices of dubious value. If and when the cost of those funds moves sharply higher for any reason…then the flaws of a levered economy will be quickly exposed. It is then that many hedge fund managers will wish they had stuck to selling lemons, instead of lemonade and that they could return to their staid old jobs centered around active money management.”
But faced with what Gross now calls “Alpha/Beta Anemia” caused by a secular decline in volatility, he seems to be coming around to the use of leverage to enhance active returns. In his November 2006 commentary, after arguing that markets will remain anemic for the foreseeable future, he says:
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