The SEC enforcement action vindicates the efforts of Jason Papastavrou, who runs Aris Capital Management and a fund of hedge funds that invested in Quantek.
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The average fund of hedge funds investor pays a 2% management fee and an 11% performance fee, in addition to the fees paid to each of the underlying funds.
My example also assumes an annual expense ratio of 0.65% for both the individual hedge funds and fund of funds.
But rating agencies should surely not be involved as supervisors of fund managers, especially of unregulated hedge funds: they ought to be backstops, not gamblers' stooges.
Last week I was preparing to testify as an expert on behalf of an investor who had lost millions in a hedge fund of funds recommended to him by a private bank.
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If this were the case then the purpose of the investment restrictions would be effectively undermined with respect to the hedge fund of funds hired.
Now throw in something for the 2-and-20 crowd, namely private equity managers, venture capitalists, hedge fund operators and funds-of-hedge-funds operators.
Hedge funds, including fund of funds, are generally unregistered private investment partnerships, funds or pools that may invest and trade in many different markets, strategies and instruments (including securities, non-securities and derivatives).
He says the relatively high costs of hedge funds versus mutual funds--hedge fund managers typically charge a 1% to 2% fee plus 20% or more of any profits for the fund each year--don't make them the best option for most individual investors.
Ask around for a legal beagle with experience in structured notes, hedge fund of funds or variable annuities.
Hedge fund of funds custody arrangements agreed entered into by pensions clearly do not enhance safety and reduce the administrative burden.
"Every Tom, Dick and Harry is putting out a shingle, " laments Elizabeth Hilpman, a partner in Barlow Partners, a seven-year-old New York hedge fund of funds.
Does the pension invest in any hedge fund of funds?
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Looking past the current public cynicism about the hedge fund of funds industry, it is incumbent on financial advisors and their clients to bear in mind that the need for non-correlating asset classes will never change, and hedge funds of funds still provide this effective source of diversification.
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However, in our experience many pensions are advised by their so-called independent consultants to invest a significant percentage of their assets, say 20%, in not just one but multiple hedge funds of funds, involving 50 to 150 underlying hedge fund managers.
If not, why is the pension comparing performance of its hedge funds against a hedge fund-of-fund benchmark which involves additional layers of fees and is easier to beat?
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Morgan Stanley, for instance, sponsors a fund of funds, Liquid Markets Fund I, that puts investors' money into an assortment of hedge funds that each impose one-way incentive fees (plus annual management fees).
But the newer investors in the hedge fund space are pushing most of their assets towards the largest hedge funds.
In a new paper, Jingzhi Huang of Penn State University and Ying Wang of SUNY-Albany examined the performance of 73 hedge fund-like mutual funds during the 2007 financial crisis.
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Their competence and duty to advise seemingly encompasses anything a fund may encounter- asset allocation, manager and fund performance, personnel turnover at managers, real estate, private equity, international and emerging markets, hedge funds, fund of funds, brokerage-everything but consultant-related issues.
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According to Hedge Fund Research, a research company, the value of assets in funds of hedge funds doubled last year.
In other words, the index numbers overstate the strength of hedge fund performance due to stronger results in the early years when hedge funds and the industry itself were both smaller.
Owen, a money manager, hedge fund investor and the author of The Prudent Investor's Guide to Hedge Funds (Wiley, 2000), attributes a large part of the problem to the cult of relative performance.
The billionaire founder of hedge fund Galleon Group then ordered his funds to trade on the inside information.
Each hedge fund within a fund of funds custodies the assets it manages, including pension assets, wherever it chooses.
His smaller leveraged fund was one of the best-performing hedge funds in 2012.
But what the data do not do is compare hedge fund performance with that of mutual funds--those comparatively boring investment pools for ordinary mortals.
Interestingly, the SEC just announced the increasing use of alternative and hedge fund strategies by mutual funds, ETFs and variable annuities as a new and emerging risk.
First, new 13F filings filed with the SEC reveal a number of mutual funds and hedge fund managers trimmed back their AAPL holdings and short interest that jumped considerably during the last two weeks of April per data from NASDAQ.
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