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The Guardian view on a savings scandal: a star has fallen and an industry is in disgrace | Editorial

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Neil Woodford was the UK’s most famous fund manager. His fall highlights an industry both lucrative and dysfunctionalIn his classic book A Random Walk Down Wall Street, the Princeton economist Burton Malkiel writes: “A blindfolded monkey throwing darts at a newspaper’s financial pages could select a portfolio that would do just as well as one carefully selected by experts.” Last year, the Wall Street Journal threw darts at a list of shares and pitted the resulting random portfolio against those of the cream of the hedge-fund world. The result? The dartboard beat the professionals by 27 percentage points.The investment world is no place for geniuses; anyone who claims otherwise is a fool or a charlatan. Yet this does not stop money managers touting themselves as … [Read More...]

Hedge fund crisis

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Hope for the best but hedge for the worst. First rule of risk management – if it can happen, it will happen. Market crashes are no problem for investors that diversify PROPERLY. I’ve been saying, writing and doing for so many years now but to repeat: only invest in alpha and hedge beta factor sensitivities away. NO ASSET ALLOCATION. Zero naive equity or credit exposure. Only short/long SKILL. Skill strategies are the ONLY suitable, prudent investment.We have seen excellent returns from great hedge funds, hard times for lower quality managers but much worse from “cheap” risk craving index funds. Skilled investors don’t always make money but they do have fewer, milder and shorter drawdowns than passive funds that don’t try to manage risk, reduce exposures or … [Read More...]

Funds of funds

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You can’t be too careful with hedge funds. We have large amounts to invest so all our managers are required to make daily visits to our conveniently located head office for performance updates. We do rigorous background checks unlike mere F3s and F2s. Initial due diligence includes managers providing a pint of blood and pound of flesh for DNA analysis. We also require their great-aunt’s, next door neighbor’s second-cousin’s original birth certificate.The required 1,000 question RFP questionnaire sorts the wheat from chaff in the swashbuckling cowboy world, that media thinks exists in hedge fund land. All trades by F3, F2 and F1 managers must be pre-authorized by our byzantine bureaucracy with approval forms to be submitted in original notarized triplicate to the … [Read More...]

LGIM to launch its first fossil fuel-free pension fund after pressure

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UK’s biggest fund manager had been criticised over inclusion of stocks such as Shell The UK’s biggest fund manager has bowed to client pressure and agreed to launch its first fossil fuel-free ethical pension fund later this year.Legal & General Investment Management (LGIM), which has been one of the most outspoken fund managers over the climate crisis, made the decision after a number of clients raised concerns that stocks such as Shell were still being included in its range of ethical funds. Related: JP Morgan to withdraw support for some fossil fuels Continue reading… [Read More...]

Best hedge fund?

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Best hedge fund? World’s top investor? When do past returns predict future performance? Defining “best” as highest risk adjusted alpha after deducting all style premia and beta factors, the greatest ever hedge fund manager is obvious.Skill is predictive, luck is not. Alpha yes, beta no. It’s better to select jockeys, rather than horses, as I wish to avoid the vexatious volatility and devastating drawdowns of smart/dumb beta. Invest with great managers before they are famous. Despite outstanding performance, hedge fund managers like George Soros, Warren Buffett and Jim Simons were unknown for decades. Even now 99.99% of pension plans avoid them like the plague. Jim, Warren and George don’t need to “pay to play” to so-called institutional “consultants” or even more misleading financial “advisor” … [Read More...]

Rees-Mogg firm accused of cashing in on coronavirus crisis

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Investors in Somerset Capital Management told they could make ‘super normal returns’ Coronavirus – latest updatesSee all our coronavirus coverageGovernment minister Jacob Rees-Mogg’s investment firm has been criticised for exploiting the coronavirus crisis after telling clients it provided a chance to make “super normal returns”.Somerset Capital Management (SCM), which manages investments in emerging markets, told clients that the dive in stock market valuations around the world since the pandemic took hold had made “excellent entry points for investors”.Market dislocations of this magnitude happen rarely, perhaps once or twice in a generation, and have historically provided excellent entry points for investorsNo fan of Rees-Mogg, and of course super-profits must be properly taxed, but this is a bit silly. SCM wants to invest in … [Read More...]

Big or best fund

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Hedge fund due diligence? Many people confuse BIG with BEST. Investors are urged to put more in big companies than small companies! Why? They are even expected to lend the most money to biggest sovereign debt addicts? With hedge funds, there is almost no overlap on a list of the best firms versus the biggest. Media and consultants focus on big firms. Instead I focus on managers that will make me the most money in the future. Isn’t that the point?The AUM sweet spot for risk adjusted returns for most hedge fund managers is in the tens to hundreds of millions NOT billions. Over 90% of the world’s BEST hedge funds manage TOTAL firm assets of less than USD 1 billion. In fact I typically advise institutional … [Read More...]

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