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New Managers January 2013

47N - The Pied Piper of Hamelin

47N Series

Fraser McKenzie

This article was authored by Fraser McKenzie, Manager Partner, http://www.47n.com/ 47 Degrees North Capital Management, a specialist alternative investment firm, and a pioneer in early-stage hedge fund investing. It was selected as one of three successful candidates out of 97 applicants to manage the emerging hedge fund managers program at CalPERS.

47N's objective of this series of articles is to discuss and inform on issues relevant to emerging managers, including corporate governance and investing.

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The Pied Piper of Hamelin

The Pied Piper of Hamelin is the subject of a 16th century German legend. A piper dressed in colourful clothing and claiming to be a rat-catcher, promises to cure the town of Hamelin's rat infestation by luring them away with the music from his magical pipe. However, when the rats are safely gone the town's mayor refuses to pay the Pied Piper and the story takes a grim turn. He takes his revenge by this time luring away the town's children with his music - never to return.

Fast forward to the 21st century; the Federal Reserve and other major central banks around the world continue to ward off economic recession with their zero-interest rate music and eye-catching quantitative easing. The aim of policy makers is to push investors further and further out the risk spectrum, well beyond what one wag called the √ÉĘ√Ę‚Äö¨√Ö‚Äúreturn-free risk√ÉĘ√Ę‚Äö¨√āĚ of government bonds, into riskier assets with historically very low returns. This has worked. Investors have piled into high-yield bonds and even the U.S. sub-prime mortgage bonds that were so toxic......................

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This article was published in Opalesque's New Managers a top-down monthly analysis, news and research publication on the global emerging manager space.
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