The Top 3 Hedge Fund Media Myths
Now monkeys, believe it or not there are some good reporters out there doing solid research on the financial industry, have very good contacts, conduct good interviews and perform excellent due diligence so they are adequately informed.
However, for every media representative who does that, there are dozens who don’t do their homework and are responsible for perpetuating misinformation about the industry. Whether it is to sell papers or collect unique visitors, the media can wind up selling a lot of myths about hedge funds and private equity to the general public.
What is especially frustrating is that some of these “media myths” may even have a tiny kernel of truth to them—that seems obvious to the informed, diligent monkeys of WSO but maybe not to an industry outsider.
Here are the top 3 hedge fund media myths:
1. Hedge funds are all enormous, multibillion-dollar investments that can destroy publicly-traded companies.
It is true that there are some “megafunds” ($10 billion AUM and up) that account for about half of all total assets under management by the hedge fund industry. But the hedge fund/private equity space is quite heterogeneous in terms of size; in fact, the most common hedge fund AUM bracket is $200 million or less. If you think about it, one of those funds only has enough capital for a few modest positions at a time, especially if they are managing many different securities. A few million, give or take, is hardly enough to dramatically sway markets.
2. Hedge funds are totally unregulated.
The truth is that hedge funds are MOSTLY regulated. Although they are now required to register for the SEC and are not directly regulated by it, hedge funds are regulated at the asset level. What that means is that no matter what type of security they invest in—equities, commodities, real estate—they are still accountable to the agencies that oversee those markets. The SEC isn’t the only regulator on the Street, and frankly, since they haven’t even legally defined the term “hedge fund” yet, do you think they would have the slightest clue how to regulate them?
3. Hedge funds are always committing fraud and blowing up their clients.
An amusing quote I found while learning about hedge funds was that you only hear about “the top 1% in terms of wealth and the bottom 1% in terms of ethics” in the media. This tends to paint a picture of hedge funds being these shady and generally dishonest investment vehicles. In reality, a 2006 Capco study found that hedge funds most commonly fail because of operational breakdowns, such as process errors or key people leaving the team—not from redemptions due to poor performance or fraud. In fact, only about .1% of hedge funds have even been accused of fraud, let alone provably committed it!
So there you have it—next time you run into someone who blindly spouts off these “truths,” lay down the real truth instead! You’re welcome.
Comments
Some say HFs are secretive
Some say HFs are secretive because they are hiding things, but really by law they can't advertise.
4. Insider Trading at Hedge Funds is Illegal
Not if you're big enough.
"A man generally has two reasons for doing anything. One that sounds good, and the real one." - J.P. Morgan
Flesh, who the fuck do you
Flesh, who the fuck do you think you are? Kevin Roose? Nah... I'm just kidding man. Great post and way to clear up some of the misconceptions of hedge funds! +1 for you!
Tell the media man, they need
Tell the media man, they need to know
"WSO is like the 300 for anti spamage. None shall pass." -happypantsmcgee
"You stop being an asshole when it sucks to be you." -IlliniProgrammer
Have you read More Money than
Have you read More Money than God? Pleasure reading about hedge funds seems to be right up your alley. It paints them in a good light and your points highlight the book quite well.
"You stop being an asshole when it sucks to be you." - IlliniProgrammer
this is like posting "george
this is like posting "george bush is a bad man" on huffpo
D M: Tell the media man, they
Tell the media man, they need to know
Agreed...
Senvik: Have you read More
Have you read More Money than God? Pleasure reading about hedge funds seems to be right up your alley. It paints them in a good light and your points highlight the book quite well.
Agreed, More Money Than God = awesome read.
Hedgehogging is also a great hedge fund related book (kind of a must-read)
jmdude: Senvik: Have you
Have you read More Money than God? Pleasure reading about hedge funds seems to be right up your alley. It paints them in a good light and your points highlight the book quite well.
Agreed, More Money Than God = awesome read.
Hedgehogging is also a great hedge fund related book (kind of a must-read)
Thanks for the suggestion. Will read.
"You stop being an asshole when it sucks to be you." - IlliniProgrammer
You know whats funny CNBC
You know whats funny CNBC will never run a story about a post like this but Bankerella's bullshit will make it front page on CNBC. Gotta love how the media works.
The answer to your question is 1) network 2) get involved 3) beef up your resume 4) repeat -happypantsmcgee
WSO is not your personal search function.
there are so many educated
there are so many educated uneducated douches out there who believe the media crap at face value. thank you for doing some myth busting. we need as much as we can get!
"Everything comes to those who hustle while they wait."
-Thomas Edison
In The Flesh: Now monkeys,
Now monkeys, believe it or not there are some good reporters out there doing solid research on the financial industry, have very good contacts, conduct good interviews and perform excellent due diligence so they are adequately informed.
However, for every media representative who does that, there are dozens who don’t do their homework and are responsible for perpetuating misinformation about the industry. Whether it is to sell papers or collect unique visitors, the media can wind up selling a lot of myths about hedge funds and private equity to the general public.
What is especially frustrating is that some of these “media myths” may even have a tiny kernel of truth to them—that seems obvious to the informed, diligent monkeys of WSO but maybe not to an industry outsider.
Here are the top 3 hedge fund media myths:
1. Hedge funds are all enormous, multibillion-dollar investments that can destroy publicly-traded companies.
It is true that there are some “megafunds” ($10 billion AUM and up) that account for about half of all total assets under management by the hedge fund industry. But the hedge fund/private equity space is quite heterogeneous in terms of size; in fact, the most common hedge fund AUM bracket is $200 million or less. If you think about it, one of those funds only has enough capital for a few modest positions at a time, especially if they are managing many different securities. A few million, give or take, is hardly enough to dramatically sway markets.
2. Hedge funds are totally unregulated.
The truth is that hedge funds are MOSTLY regulated. Although they are now required to register for the SEC and are not directly regulated by it, hedge funds are regulated at the asset level. What that means is that no matter what type of security they invest in—equities, commodities, real estate—they are still accountable to the agencies that oversee those markets. The SEC isn’t the only regulator on the Street, and frankly, since they haven’t even legally defined the term “hedge fund” yet, do you think they would have the slightest clue how to regulate them?
3. Hedge funds are always committing fraud and blowing up their clients.
An amusing quote I found while learning about hedge funds was that you only hear about “the top 1% in terms of wealth and the bottom 1% in terms of ethics” in the media. This tends to paint a picture of hedge funds being these shady and generally dishonest investment vehicles. In reality, a 2006 Capco study found that hedge funds most commonly fail because of operational breakdowns, such as process errors or key people leaving the team—not from redemptions due to poor performance or fraud. In fact, only about .1% of hedge funds have even been accused of fraud, let alone provably committed it!
So there you have it—next time you run into someone who blindly spouts off these “truths,” lay down the real truth instead! You’re welcome.
Fear is the greatest motivator. Motivation is what it takes to find profit.
When people or the media
When people or the media don't know what's going on in the market, it's easy to chalk it up as "the hedge funds are behind X".
Fear is the greatest motivator. Motivation is what it takes to find profit.
BTbanker: Some say HFs are
Some say HFs are secretive because they are hiding things, but really by law they can't advertise.
4. Insider Trading at Hedge Funds is Illegal
Not if you're big enough.
So true - it's truly shocking how often insider information gets out to the market and less scrupulous players act on it.
normal people will only know
normal people will only know two things about hedge fund : Soros busted England's central bank and Asia's economy, and David Einhorn busted Lehmann
So don't expect too much for HF's reputation in public's mind.
KozzAndEffect: D M: Tell
Tell the media man, they need to know
Agreed...
Working on getting my avatar on CNBC one of these days...
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Cool Article!
In The