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Alternative Market Briefing

How to market your hedge fund in 2009 - ammunition against myths, misconceptions and sarcasm

Friday, December 19, 2008

By Matthias Knab: My attention was drawn again to a paper on the current state of the hedge fund industry by Allenbridge HedgeInfo, which we already covered on November 12th (see here for previous article).

Allenbridge points out that the mainstream press is often full of anti-hedge fund rhetoric, wondering why the same misleading or untrue allegations are repeated over and over again.

The report was initially published before the Madoff scandal broke, and includes some discussion points which may be worth looking at again:

  • Hedge Funds are too risky, aren't they?
    • There is a grain of truth that some hedge funds are highly leveraged or have wild performance profiles. But in general, the exact opposite is true. Diversified hedge fund indices consistently show lower volatility than indices of blue chip stocks.
  • Hedge Funds have too much leverage
    • Some hedge funds work on high levels of leverage; but different instruments and markets behave differently. So 2x leverage in long/short equities is much more volatile than 2x leverage in convertible arbitrage. Average is probably about 1.4x (down from a high of about 1.8x in 2007). But we agree that some hedge funds have taken things to extremes, and up until recently no one felt strongly enough to sto......................

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