Monday, January 08, 2007

Fascinating Bloomberg Article on Barclay's Global Investors

I'll offer a few comments below the link. The best take-away from the whole article, for my money: "The rush into hedge funds may end badly, says Zvi Bodie, a finance professor at Boston University who has studied pension issues for more than 25 years. If hedge fund trades go wrong, the use of short sales could leave pension funds in a hole, he says." Further, he also says, "There is very little evidence that anyone can consistently beat the market,'' Bodie says. ``The pensions don't want to suck it up, so they're grasping at anything that might provide an answer."

The sane man in the room! Exclusive

First thought on the article's extended discussion of how BGI's hedge fund operation has grown larger than its' iShares exchange traded funds business, is that indeed, pension funds have rushed to put a lot of money into hedge fund-type investments, and if, as the article notes, the hedge funds do not successfully execute their strategies and make the kind of returns they have indicated they can, there will be more pension funds in a world of underfunded hurt.

Also, given the size of the funds coming into these institutional investor-oriented hedge funds, they simply cannot all beat the market. As has been said about the largest actively-managed mutual funds, in a sense, they are the market. The market cannot beat the market.

And, finally, if (hopefully not when,) BGI's hedge fund has a serious problem, I just hope and pray that it does not screw up the financial markets for more traditionally-minded investors. Like the Unknown Advisor and so many others. Ah well, if it does, think "buying opportunity".

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