Reader Feedback: Doctor heal thyself!
Jul 16th, 2007 | Filed under: Hedge Fund Industry TrendsLast week, we argued that hedge fund IPOs change the potential bubble-dynamic of the hedge fund industry. Previously, independent and (usually) objective valuation ensured that subjective judgment and emotion could not find their way into the return streams of hedge funds. But like all stocks, new hedge fund stocks are priced based on the market’s opinions about future earnings.
One reader, the CEO of a fund of funds, wrote us to say that the introduction of this subjective dynamic will actually be tempered by one of the industry’s favorite tools – short-selling:
“Love the article BUT of course hedge fund and alternative managers will not become a bubble because all the other hedge funds will short this stuff - and they are starting already - we have managers with wins in both [one hedge fund stock] (short term of course but who can resist…!!) and [another hedge fund stock]. Ouch Zip will be the most fun I think!!
The reader raises a good point. Hedge fund insiders should (/will) welcome short-selling of their companies since shorting increases market efficiency (an argument often made in support of the hedge fund industry itself). To argue otherwise would invite accusations of hypocrisy.
The bottom line: those who repute to make capital markets healthier now have an opportunity to turn their attention toward their own well-being - starting with “de-bubbling” through a liberal dose of short-selling.
