Hedge fund IPOs: sure, many have stunk – but what does that say about hedge funds in general?
Aug 12th, 2008 | Filed under: Hedge Fund Industry TrendsHere’s another entry into the annals of misleading commentaries about hedge funds. This MarketWatch piece sets out to highlight the poor performance of the stocks of hedge fund managers such as Och-Ziff and Fortress. But it quickly and predictably falls into a pattern that is all too common – suggesting that hedge funds are a bad investment, period.
MarketWatch’s David Weidner is correct that publicly-traded hedge fund companies have stunk over the past year. He is also correct that for many Americans, these stocks represent the only means of investing in hedge funds (in fact, we discussed this back door in a post we wrote last September).
But despite what Och-Ziff management calls “strong and stable” returns, the stock is down nearly 50% YTD – due in part to the expenses associated with the IPO. Weidner concludes that investors would have been far better off in the S&P500 over this period (which was down only 15%).
Nevertheless, Weidner ignores this relative return argument when it comes to investors in the funds themselves. He describes John Paulson’s fund as having “skidded” 3.7% in July (after being up, we note, around a trillion percent in 2007). He cites one expert who says hedge fund professionals “have misled the public” – conditioning them to expect returns of 8-10% per annum. While that may be true, it does not address the issue of hedge fund manager stocks – ostensibly, the topic of the article.
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