Here’s a good article by Bill Gross, head of PIMCO, about the state of the hedge fund industry. If you don’t want to read the whole thing here’s the conclusion:
So if you’re thinking about a hedge fund to bolster your portfolio returns, give it a long think. They’re risky and they’re generally overpriced. You can do better elsewhere or even on your own. On a broader perspective, the growing fascination with hedge funds and indeed the ability to lever almost any asset at minimal borrowing costs which was the heretofore province of strongly regulated banks, promises excessive speculation that inevitably will follow the financial metronome’s pendulum towards greed then back to fear, producing a number of near certain bubble poppings in the process. America’s and, therefore increasingly, the world’s economy is unstably founded on a base of cheap money used as leverage to support certain asset prices of dubious value. If and when the cost of those funds moves sharply higher for any reason – a dollar crisis, inflation, foreign central bank sales of Treasuries, increasing budget deficits, to name a few – then the flaws of a levered economy will be quickly exposed. It is then that many hedge fund managers will wish they had stuck to selling lemons, instead of lemonade and that they could return to their staid old jobs centered around active money management.
(link via A Dog-Eared Town and the Kirk Report)
