So there’s this Great
Moderation, right? And the hedge funds are part of it. Look at all of them
with their high alpha underperforming the S&P 500: in other words, by bringing
down beta to incredibly low levels. Which is all well and good, but it’s hardly
exciting. We want activist investors like Patrick
Degorce: high risk, high return! Or even, for that matter, Brian
Hunter. A bit of excitement – you can lose your money or you can double
it, treble it! And so: "Best
Ideas" funds. Which are getting a bit of a bad
rap. But the returns have to come from somewhere, right? One alternative:
just lever up before you invest in that high-alpha, low-beta fund.
But then you run the risk of losing more than all your money.
There are those who would argue that all the excess liquidity out there drives funds into riskier investments and bring liquidity to underserved markets. Sounds great. As long as they keep underwriting diligently. But then look at them sub-prime and Alt A mortgages. Whoops.
There are those who would argue that all the excess liquidity out there drives funds into riskier investments and bring liquidity to underserved markets. Sounds great. As long as they keep underwriting diligently. But then look at them sub-prime and Alt A mortgages. Whoops.