Back in the Saddle
Unless the bottom really falls out this month, hedge funds are set to end 2009 up around 20%, roughly equivalent with broader equity markets. That should close the books on 2008â€”yes, 2008â€”once and for all. It’ll go down as an anomaly in hedge fund performance, with a bright red asterisk next to the negative 19% figureâ€”or whatever it was in your hedge fund index of choice.
So the hedge fund industry should be celebrating, right? Back in black and all that. Well, maybe.
In the spring, I posed these questions to a panel of experts comprising Samer Nsouli of Lyford Group International; James Lubin of Hyman Beck & Co.; Larry Siegel, then of the Ford Foundation; and Jacob Gottlieb of Visium Asset Management: Did the disastrous 2008 weed out all the beta poseurs? Have we returned to alpha in the hedge fund industry?
The verdict was it was too soon to tell. My bet, now that the end of the year is in sight, is that, incredible as it may seem, 2008 wasn’t painful enough to weed out the beta poseurs. When the stock market tanks againâ€”and it willâ€”many hedge funds will be dragged under, too. See, it’s not really a secret any more that many hedge funds do not hedge. When I started covering this business a decade ago, I was told that the idea behind hedge funds was to be up but not as much as the market in bull cycles and still positive in bear cycles.
Most hedge funds have the up in bull market cycles part covered. But they fail to cover their buttsâ€”or much of anything elseâ€”when the bear comes out. If equity markets are down again sharply in 2010, expect long/short equity managers to be down nearly in lockstep. Not still positive but just not AS positive, not down but down less than the markets. Down about the same as the market. Last I checked, that wasn’t alpha. But hey, I can’t afford 2 and 20 anyway, so what do I know?
I’m curious to hear what you think. Am I pissing on the parade? Missing the point?
Headlines that Hurt
From Reuters, via HedgeWorld: Probe Extended One Month in U.S. Insider Trade Case
Most headlines that hurt involve probes. Probes into things. Painful probes. Avoid the probes, people, for your own comfort and safety.
Not that anyone gives a whit about my status, but for the curious I am “recuperating.” I had knee surgery last Thursday [Dec. 3] to repair a torn anterior cruciate ligament. The ACL is basically a fat bundle of ligament tissue that connects your femur and your tibia and keeps one from sliding around above or below the other. Sliding is bad and it hurts when it happens. It’s also not a good thing when you like to play tennis, run or are occasionally asked to carry heavy items up or down stairs.
So now I have what’s known as an “allograph,” or cadaver tissue, serving as my ACL. When my brother had his ACL replaced (or “reconstructed,” as the doctors like to say) a few years ago, his doctor used part of his own hamstring. He can still feel the missing hamstring tissue, but the knee is fine.
These days, ACL replacement surgery is an outpatient procedure. You go in in the morning and are on your way home by lunchtime. While the procedural time has been cut (no pun intended), the recovery time has not. I’m looking at a couple of weeks on crutches, a few more weeks using a cane, six months ’till I can ride my motorcycle and a year until maximum recoveryâ€”which may be something less than 100%.
Remarkably, I’ve spoken with at least a half-dozen people who are having the surgery soon themselves, had it recently or know someone who is. If you’re contemplating it and want post-op details, just ask. I’ll dish.
Pearl of Wisdom
It should be noted that today was Pearl Harbor Day. Along that line of thought, the History Channel just put out a stunning 10-part high definition series about World War II. Some of the footage is very raw and that, coupled with the excellent narration by Chicago’s (well, actually Blue Island’s) own Gary Sinise, helps to put a sobering face on this war business. It ain’t a video game, kids.