Hedge Fund Folly Picking Up Pace

January 31, 2008

Dow Jones has managed to dig up people willing to speculate that big banks and financial institutions are ready to bail out of the hedge fund business.

The report suggests that Bear Stearns and others produced lousy returns last year in their alternative investment funds. Most of the blame seems to be going to the meltdown in credit markets spurred by subprime loan issues.

But something's missing from this picture. What strikes me as interesting is the kind of assumptions that are built into these types of stories. Is it really commonly believed that hedge funds can actually live up to their lofty claims in the first place?

Another noteworthy observation is that word apparently is heating up on Wall Street that more non-fund types are looking to exit the mutual funds business, much like Merrill Lynch and Citigroup already have done. Those quoted in the story even threw in some references to how bureaucratic financial institutions with non-core operations in asset management tend to have really high fees and poor relative performance. Wow, now isn't that a revelation?

I've got an idea ... maybe they should try ... ETFs! Couldn't even the back-office stuff prove very lucrative, especially since many of these huge "financial institutions" (I love to hate that term) already are pretty well set up to execute transactions and follow the paper trail of ETF exchanges?

Not to change the subject, but I'd like to jump in here and put my two cents in concerning politics. While I agree with Jim that lively debate is good for America, I'm still left feeling a little shortchanged. Big deal. Isn't that supposed to be the norm in a democracy? So what you're telling me is that since everyone's become so apathetic and cynical, any sign of life in public debate among our candidates is something to get pumped up about?

I don't think so. Aren't we setting a pretty low bar for the process to elect the next leader of the free world? I'd also argue that much of the liveliness in this year's debate can be credited to the use of electronic media. While the use of YouTube videos and the like is pretty hokey, the Internet has certainly opened up the format for candidates discussing the issues. 

Thank goodness we don't have to watch a bunch of stiffs standing at a podium being scolded for going beyond their five-second pre-scripted presentation time. Hopefully, that's pretty much a thing of the past!

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