Hedge Funds

Hedge Funds have received a lot of negative attention lately. Before I get into this article let me say that hedge funds are not in and of themselves bad. In general terms they provide a lot of liquidity for all capital markets and some funds provide great returns.

After I read this article on Bloomberg I wanted to write a piece to question whether the typical investor needs a hedge fund. The article addresses the situation with Bailey Coats and Quadriga Capital Management.

Quadriga's clients are less wealthy than most hedge fund investors, according to the article. One theme of this blog has been to keep things in your portfolio as simple as possible. A lot of different strategies end up with similar returns over long periods of time, keep in mind there are exceptions.

The idea of most strategies yielding similar results makes an argument for having the least volatile ride you can find. My idea of that involves dividend but there are several approaches that should (no guarantee) make things less volatile. This is the type of thing that appeals to most of the people that hire a firm like the one I work for (at least the majority of our clients).

It is not clear to me why the person with $1.5 million or so to invest needs exposure to a convertible arbitrage hedge fund. Being long GM bonds and short GM common may have been a great trade for a while but why is it better than a simple, diversified portfolio.

There are a lot of stocks and different types of funds that even people with substantial wealth can benefit from. There are plenty of very good reasons to use hedge funds and I wouldn't quibble with them but keeping things very simple should at least be considered.