Change of ownership, change of fortunes

Who can tell the extent to which private/hedge funds owe their popularity to Sarbanes-Oaxley? Their coming into being could be attributed to urges similar to those that once made Enron popular, while the success of many may well lie with Sarbanes-Oaxley, the very act meant to prevent another Enron. This is to say that private/hedge funds can do what your regular financial institution could not even dream of after Sarbanes-Oaxley. Indeed, who doesn't know that what is not allowed for some becomes source of profit for others?
Signs of the popularity of the funds abound. For one, it is the sheer size of the funds phenomenon, there are about 9000 of them, with total assets of more than $1.2 trillion. Then there are the seasoned managers and deal makers leaving established businesses and financial organizations to join the funds. The investor public is also an increasing part of this, directly or not, knowingly or not, via either direct investments or the very pension funds they send money to every month, respectively. And, as if to take their popularity to the bank, some funds began offering themselves to the largest investor public there is, the public markets of capital.
Despite their popularity, when the amount of assets of the funds is considered in conjunction with leverage, or the absence of oversight, one can only rely on metaphors to describe their risk for anybody ranging from the individual investor to the whole economy. For a very interesting and multi-faceted conversation about funds, have a look at the comments following Hedge Funds Go Public, Culturally and Literally , in the DealBook section of NYTimes.
Market Realist goes as far as drawing an analogy between the conditions surrounding today's hedge funds and those that generated the 1929 crash, chief amongst being leverage. The second comment down, G. Gekko's, is a sensible and insightful analysis, followed by your own' s truly. My point is that by their going public, some of the best performing funds may signal the end of the party.
One can only hope we won't (be in a position to) know the risks associated with hedge funds before some form of oversight becomes the norm.


Anonymous said...

As you're saying "some of the best performing funds may signal the end of the party." because a secret is a secret if only one knows it...
Probably the party moved somewhere else...

fCh said...

Yes, the party has been moving and there are even some who know this, yet they are desperate enough to try one more trick before the year's end. One has to understand that unless the people who move one's money have their own money in the game, the only game for the latter is to move money around in order to generate fees.

Make sure you also check NYC Patriot's outstanding comment here:

Popular Posts