It seems like every week I read a news story about how hedge funds are declining in one way or another. People pulling their money out, funds closing down, increased regulation, etc. Hedge funds have become villains of the financial system. Today comes news that Obama is planning to "press hard" for increased taxes on Hedge Fund managers (PE too-Here's the story for those who missed it: http://blogs.wsj.com/washwire/2010/09/20/obama-ra… )
What does everyone else think about recent events and the future of hedge funds? Should we prospective hedge fund workers be worried that our dream jobs will be non-existent by the time we are qualified for them? That hedge funds will end up being more like PWM or mutual funds in terms of both investment style and job description/pay? Or is the negativity just a reaction to the financial crisis that will blow away with time? What do you think?
Every year 1000 hedge funds are opened and every year 1000 hedge funds close shop. During the boom times, the success stories drowned out the bad stories. HF have been around for 70 years and they will be around for 70 more. They will also always be around, because no bank will pay a trader 20% - 30% of what they make or let them take on the same level of risk. Also, few things are more alluring than being your own boss.
Agreed. I know of a CIO at mid-sized mutual fund considering creating a hedge fund. They'll always be around.
As long as people have jobs and can't manage their own money full-time, there will be pooled investment vehicles, some less regulated than others.
Hedge funds exploit a large loop hole in the current tax law. Their legal structure allows for the general partners to pass the carried interest (performance fee) onto their tax returns as capital gains rather than as ordinary income. Instead of paying 35% federal tax most of the managers are only paying 15%. It's the same for PE firms.
The above posts alluded to it but hedge funds will always be around due to the potential for enormous pay days. Who doesn't want to be the next Paulson, Tepper, Einhorn, etc...These guys put up a relatively small amount of capital and are now all billionaires.
I posted something along these lines a while ago, but legislation should be sure to differentiate between performance fees and and a manager's stake in the fund. No way should managers pay income tax on their own money.
there will always be speculation...it has been around since ancient times. Whether the specific structure of a limited partnership with the managing partner taking a performance fee is prevalent is really not that important. Trading is one of the oldest professions right up their with ho-ing and it isnt going anywhere anytime soon.
And BTW I have only been out of college for 8.5 years and this is already my third cycle of people saying "hedge funds are dead"...the first one occured in 2003-2004 when everyone thought rates were going to stay low forever and the US was going to be japan and there would be no more yield curve trading (i remember my boss frantically trying to learn other products to trade as US bond trading was going to be obsolete), the second was in 2006 when the Fed was on hold and everyone thought volatility would permanently be low (what a laugh in retrospect given what happened in 08-09), and this third one is due to regulation/obama. Dont believe the hype.
hedge funds arent dying but markets are
That's just about the dumbest thing anyone has ever written on the internet.
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