Hedge fund, a long only manager and a passive pusher are flying in for an institutional investor beauty parade in New Zealand. As the plane lands they see one purple sheep in a field.
Professor Passive says "All kiwi sheep are purple! I must buy them all now. At any price the farmer asks, no matter how expensive. No need to know the sheep's business or earnings. Forget about analysis or due diligence. Ignore risk! Prices are always correct because markets are efficient. It's not my money. I have academic tenure and a Nobel prize. Risk free...for me. An index tracking firm pays me outrageous fees to push "cheap" high risk unskilled toxic waste."
Long only manager says "Some kiwi sheep are purple but the professor says they all are. I am benchmarked to the index so I must also buy that sheep regardless of price or valuation. Can't risk tracking error or not being fully invested as pension consultants will remove me from their recommended list. It's not my money either. I get paid whether clients win or lose."
Hedge fund blog says "No asset can ever be bought without regard to price. I invest as a prudent man does. You guys are breaking ERISA law and belong in jail. Doing no analysis before making a purchase for fiduciary clients is an outrageous fraud. What are the fees your clients pay getting for their money?
One sheep might be purple. Most of my clients are retirees, widows, orphans and foundations serving good causes so I MUST do more analysis than you guys. Interests are aligned as all my savings and my family and friends' money is in the fund. I analyze potential investments very closely. It's true fiduciary duty. I'm ONLY paid well if I make money for clients.
There seems to be a sheep, one side of which appears to be temporarily purple. This may be due to chemicals in the sheep-dip, an accident with dye or paint, an optical illusion, a practical joke or a smudge on the airplane window. I will closely study sheep fundamentals and talk to many shepherds, shearers and wool merchants.
My quant team will gather extensive ovine data and conduct rigorous statistical analysis, mathematical modeling, stress tests and scenario simulations. Perhaps, after exhaustive research, I might be able to decide whether to short sell or even buy that apparently purple sheep, depending on its value.
The university endowment of Professor Passive is a client as well as the Nobel Foundation and long only dude's pension plan. They need the absolute returns I deliver because you can't buy food, pay faculty or meet liabilities with relative returns in bear markets. Passive's employer doesn't invest a cent in his beloved index funds. Too risky and too expensive."
Which fund would YOU invest in? Who should get the mandate? Who is most likely to generate the most RELIABLE risk-adjusted returns? Whose fees represent the best VALUE for the work? What manager is the "cheapest"?
Would an investor truly following the prudent man rule really choose an index fund given the fiduciary duty for due diligence in selecting appropriate investments for beneficiaries? Passive funds that do no security analysis or risk management are a clear breach of fiduciary duty.
Which fund offers alignment between client and manager interests? "Cheap" index funds are the joke. The more conservative you are the more you need in proper hedge funds.
via:http://hedgefund.blogspot.in/2005/09/hedge-fund-blog.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+HedgeFund+(Hedge+Fund)
Professor Passive says "All kiwi sheep are purple! I must buy them all now. At any price the farmer asks, no matter how expensive. No need to know the sheep's business or earnings. Forget about analysis or due diligence. Ignore risk! Prices are always correct because markets are efficient. It's not my money. I have academic tenure and a Nobel prize. Risk free...for me. An index tracking firm pays me outrageous fees to push "cheap" high risk unskilled toxic waste."
Long only manager says "Some kiwi sheep are purple but the professor says they all are. I am benchmarked to the index so I must also buy that sheep regardless of price or valuation. Can't risk tracking error or not being fully invested as pension consultants will remove me from their recommended list. It's not my money either. I get paid whether clients win or lose."
Hedge fund blog says "No asset can ever be bought without regard to price. I invest as a prudent man does. You guys are breaking ERISA law and belong in jail. Doing no analysis before making a purchase for fiduciary clients is an outrageous fraud. What are the fees your clients pay getting for their money?
One sheep might be purple. Most of my clients are retirees, widows, orphans and foundations serving good causes so I MUST do more analysis than you guys. Interests are aligned as all my savings and my family and friends' money is in the fund. I analyze potential investments very closely. It's true fiduciary duty. I'm ONLY paid well if I make money for clients.
There seems to be a sheep, one side of which appears to be temporarily purple. This may be due to chemicals in the sheep-dip, an accident with dye or paint, an optical illusion, a practical joke or a smudge on the airplane window. I will closely study sheep fundamentals and talk to many shepherds, shearers and wool merchants.
My quant team will gather extensive ovine data and conduct rigorous statistical analysis, mathematical modeling, stress tests and scenario simulations. Perhaps, after exhaustive research, I might be able to decide whether to short sell or even buy that apparently purple sheep, depending on its value.
The university endowment of Professor Passive is a client as well as the Nobel Foundation and long only dude's pension plan. They need the absolute returns I deliver because you can't buy food, pay faculty or meet liabilities with relative returns in bear markets. Passive's employer doesn't invest a cent in his beloved index funds. Too risky and too expensive."
Which fund would YOU invest in? Who should get the mandate? Who is most likely to generate the most RELIABLE risk-adjusted returns? Whose fees represent the best VALUE for the work? What manager is the "cheapest"?
Would an investor truly following the prudent man rule really choose an index fund given the fiduciary duty for due diligence in selecting appropriate investments for beneficiaries? Passive funds that do no security analysis or risk management are a clear breach of fiduciary duty.
Which fund offers alignment between client and manager interests? "Cheap" index funds are the joke. The more conservative you are the more you need in proper hedge funds.
via:http://hedgefund.blogspot.in/2005/09/hedge-fund-blog.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+HedgeFund+(Hedge+Fund)
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