Hedge funds are concerned that the market as they know it may collapse. The Wall St. casino is closing. Risk can be taxed by total annihilation. The fun has gone out of becoming fabulous rich on the back of other people’s money.
So, hedge funds are pulling in their horns and preparing to hibernate until the storm has passed them by.
According to the FT, "Citigroup estimates that hedge funds have now placed $600bn in cash, and that $100bn of this is held in money market funds." Those are the same money market funds where old people who play shuffle board at retirement homes have their money.
The retreat from risk is a dissolution of both will and intelligence. Bad markets may give birth to most failure, but they also create pockets of value, especially for investors who can locate them and exploit them for profit. Those profits may not materialize in six months, but they could be mammoth in two or three years.Warren Buffet is making that assumption with Goldman Sachs. Wilbur Ross, Mr. Chapter 11, says he already sees opportunity masked by panic.
Most hedge funds get a 2% fee for the assets they manage even if they don’t bother to have their employees come to work. They often get 20% of the profits they make for their customers. It is a black day in the history of investing when the remarkably greedy cannot stand the sight of blood.
Wounded companies and financial firms are often the most valuable investment. They can be bought for nickles and dimes. Even if that money has some degree of leverage behind it, audentes fortuna juvat. Fortune favors the bold.
Douglas A. McIntyre
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