Marketplace Scratch Pad

A comeback for hedge funds?

Scott Jagow Jun 16, 2009

Speaking of a lack of regulation, let’s talk about those famously unregulated pools of money called hedge funds. Marketplace’s Amy Scott is working on a story for tonight about a new fund. It’s the biggest hedge fund start-up of the year, according to Bloomberg. At our morning meeting, we asked ourselves, what does this mean? Are big money investors ready to jump right back into risk?

Well, there are conflicting signals. Amy told me this:

So far I’m hearing that investors are still pretty nervous about risk, and that the new funds that are raising around the billion dollar mark are actually anomalies. A lot of funds are launching to take advantage of a market ripe for profit, but they’re having trouble raising money.

In fact, Hedge Fund Research came out with the latest numbers today. In the first three months of the year, about 150 funds launched. But 376 were closed. That’s the second-highest attrition rate on record.

On the other hand, big investors like pensions and endowments are scouring the planet for investments that will pay them some kind of return, as opposed to the safe vehicles that are paying zero interest.

Now, remember, much of this financial crisis came about because big-time investors were seeking better returns, and they over-exposed themselves to risk. Deja-vu, all over again?

Amy says some investors have lost so much money in the stock market, they feel they have no choice but to dip back into hedge funds. It’s hard to make money in a bear stock market. With a hedge fund, you can make money in any kind of market.

You just have to bet the right way. And we’ve all seen how difficult that can be.

How about betting on hyperinflation? There’s a new hedge fund that thinks that’s a sure bet. Also from Bloomberg today:

The fund will wager on an increase in commodity and equity prices, bond yields and increased currency volatility.

“It’s a very high-risk, high-return fund,” said Haworth, who has been trading derivatives for more than 20 years…

To quote Yogi Berra for a second time:

“You’ve got to be very careful if you don’t know where you are going, because you might not get there.”

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