Hedge Funds For Dummies and a Cleaning of the House

August 8, 2007 |

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Reuters reported that hedge funds have suffered one of their worst weeks of performance in years.  Hmmm. Now, as you can imagine, at HFL, we have seen our fair share of hedge fund start ups over the years — and believe me when I tell you we could tell you some great stories.  We’ve been contacted by guys thinking they could start a hedge fund because they could make money on Ebay, folks who wanted to start a hedge fund based on the fine art purchases (we never could figure out how this particular strategy was “hedged”) and the son of a Texas tycoon who later decided to grow hemp for a living (no, his proposed hedge fund strategy was not the farming of hemp).  He only engaged in that when no one would seed his hedge fund idea (we didn’t want to touch it either).  I believe he spent some time in the can. 

But my point here is that everybody and their mother has jumped onto the hedge fund bandwagon.  It is time for some shake out and to get rid of the pikers.  Books such as Hedge Funds For Dummies hasn’t helped.

 LONDON (Reuters) - Hedge funds suffered their second-worst week of performance in four years at the end of last month, according to Hedge Fund Research (HFR.L: Quote, Profile , Research), one of the industry’s most widely respected data trackers.

A HFR spokeswoman told Reuters that in the week to July 27, the firm’s HFRX index of investable funds fell 3.01 percent.

This was the worst week of performance since the five days to March 2 this year, when the index fell 3.36 percent as global stock markets sold off sharply.

Data for the firm’s broader HFRI index, which covers a broader universe of funds including portfolios closed to new investors, was not immediately available.

A meltdown in the U.S. subprime mortgage sector, which lends to those with poor credit histories, has provoked sharp volatility in credit and stock markets, hurting the short-term performance of some hedge funds.

In the week to July 27 hedge fund firm Man Group’s (EMG.L: Quote, Profile , Research) closely-watched AHL managed futures strategy fell 6.79 percent.

Let some of the ships sink.  The industry will be better off for it.

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