Let’s Talk About Something Else

Sure I could sit here and gloat, now that oil inventories have ticked higher at twice expectations and global demand forecasts have been torn up. I could, because I told you this wasn’t over, and because I mentioned explicitly that a one off inventory drawdown was more likely noise than anything substantive. Seems that oil actually didn’t have anywhere important to go, so it went back to storage.

I could do that; but I’m not going to.

I’m not going to gloat because that’s what the market wants. It wants to see me give off hearty guffaws so it can reverse higher in my face and make me look like a jackass. It wants to crush my reputation before it does what I know it will inevitably do, because that would hurt me the most. The market is a cruel mistress, like that.

So instead, let’s chat about the global demise of hedge funds.

It’s been riveting, watching the hedge fund structure almost totally impale itself over the last five years. On the face of it, hedge funds should be uncontestably preferable to other financial structures. They have more options at their disposal, and they’re comprised of money from wealthier, (allegedly) savvier investors. There should be no reason for the near total demise of the industry. Yet, here we are.

Why did this happen? Well, the fees are obvious; it’s difficult to outperform when you’re nabbing 2% of all assets under management, then scalping your clients for 20% of any gains in any year. That’s just ridiculous anyway, without your “sage” advice coming attached.

But I think the biggest single problem hedge funds have faced is a saturation of the field with morons.

The hedge fund structure on its own is solid. It’s ideal, even; you have a core group of successful men and women who come together to gain access to expanded options for their money. Under reputable oversight, that should always come out ahead. And the earlier pioneers of the approach did do very well. But like anything that’s popular, it eventually draws out the two bit hucksters and spectacularly untalented self-promoters, who work hand in hand to drive the reputation of the entire sector into the ground.

The 2/20 payment method needs to be looked at to clean the space up. As it stands, an adept marketing major with no special understanding of investing can sell themselves as life extending snake oil and, even if he or she does a God awful job, make a killing. 2% of assets is twice the pay you’d get heading a mutual fund, and these strumpets would never stand a chance of launching past the regulations and oversight that come with one of those. Who cares that the clients are losing their shirts? Sultry words and a nice smile can get them to bunker down for a few years at least, which is still a fat payoff.

The hedgies are in need of a good rain of fire to raise their Sodom and Gomorrah to the ground. Turn those cheap frauds to pillars of salt, and all of that. When the smoke clears, the real deals can set about restoring the reputation of what should be the preeminent investment platform in modern finance.

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