TheStreet.com has published an interesting article entitled "hedge funds: the road back". The author is Eric Jackson, president of Ironfire Capital based in Naples, Florida.
Jackson makes the following points:
1) Gating while charging fees is unacceptable
2) Pay for performance works
3) Don't tinker with high water marks
The basic argument - with which we wholeheartedly agree - is that managers should be well paid if they perform. However, managers should not expect to have their cake and eat it: changing the rules of the game halfway through and continuing to manipulate the system in favor of the manager is unacceptable.
As we read commentaries such as Jackson, we are also struck with another point. In many ways, the best insight as to how a manager will behave when times are tough is how they behave when times are good. Managers who were arrogant and unresponsive when performance was strong and capacity was scarce do have quite a tendency to behave the same way when the tide turns. Definitely food for thought.
Jackson's conclusion:
"The hedge fund industry will work out its excesses carried over from the last five years and become a stronger collective of funds and fund managers. Most of the lemmings will leave, until the industry once again begins to experience excessive growth. Oversight must and will improve. Lessons should be learned. But in one, five, and 10 years from now -- no matter the macro environment -- investors will still flock to hedge funds because it attracts the best managers with the most creative strategies."
Interesting ideas.
Hedge Fund Operational Due Diligence
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