It is all about the alpha

The hedge fund industry is in a death spiral — if you believe what you read in the popular press.

Managers are under attack because performance is poor and investors are demanding more from these so-called experts in asset management. Every day there is another story about a pension plan, endowment fund or other investor complaining about fees, performance, transparency, lock-ups, and more. Well you know what: The investors are right.

If mangers don’t deliver they should be fired. Investors deserve better and managers need to realize that if they can’t deliver decent returns, perhaps they need to get out of the industry. Unlike the traditional asset management business, hedge funds are about delivering returns, about generating alpha. Investing in hedge funds is about doing well when the markets rise and protecting assets when the markets fall. Traditional managers are about gathering assets and matching the performance of their index. When you invest in hedge funds you pay more, you expect more and you deserve more. If the managers aren’t delivering – fire them.

And while the popular press is hoping, praying and planning on the death of the hedge fund industry, well, my friends, that is not going to happen any time soon.

Hedge funds are far from over. In fact, it seems to me that the industry is getting ready to take off early next year. All the indicators point to it: Wall Street firms are suffering, bonuses are down and people realize that it’s worth the risk to hang out a shingle – launch a fund – and bet on themselves rather than on their bosses. The hedge fund industry is ready for a new crop of managers, managers who can deliver alpha to their investors.

The strong will survive and thrive, so don’t count the industry out just yet; things are just getting started. Darwin was right: The weak – those who are unable to deliver alpha – will become extinct.


I was in New York recently and couldn’t believe how many people were wearing vests. I’m not talking about a vest that goes with a three-piece suit, I’m talking about one made by Patagonia or some similar outfit. The trend, it seems, is to wear vests regardless of the temperature – it was 80 degrees last week in midtown. Vests and multi-colored socks are all the rage on trading desks around the city. Well, friends, were is the individuality? Clearly it is not at hedge funds or trading shops. I think people need to start running away from the herd and doing things for themselves — at least when it comes to vests and socks.

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