Early last year, I made a prediction that seemed obvious, given what I knew about the banking system and the fate of the stock market. I predicted there would be thousands of hedge funds shutting down over the next few years.
The avalanche is already in progress. Just last year, in Q3 some 7% of all hedge funds shut down, 344 funds in total. This set a record. It's likely that over 1000 hedge funds shut down in 2008 alone. Yet, the bleeding still continues.
Asian hedge funds are having an even worse time.
Over the next couple of years, I would estimate somewhere around 3000-4000 U.S. hedge funds will have closed their doors since 2008.
The fact is that most hedge fund managers are bozos, similar to mutual fund managers and most everyone else in or on Wall Street. I can state this with a good deal of credibility because of who I am. Just because you have an ability to raise capital doesn't mean you know how to manage assets prudently.
But even for those who have adequate skills, the simple fact is that the compensation structure for hedge funds (2/20) is largely reposnsible for these blowups. It encourages execessive risk-taking and has no harsh penalties for screwups.
Yet, ignorant investors...ignorant accredited and qualified investors keep investing in hedge funds without realizing that most of them are run by greedy bozos. The compensation system seen in the hedge fund industry is similar for Wall Street. While the details are different, each has some common elements; they either pass risk off to other parties or else they don't take the fall when things go bad. Only the investors get burned. Together, this misguided form of compensation, littered with execessive risk and lacking real accountability, was largely responsible for this collapse.
If these guys only read my book "America's Financial Apocalypse," they might have had a clue. I hate to keep harping on it, but still not many people really know about the book. Of course, everyone knows it all. Boone Pickens knew it all when I called on him and his guys, as did Ross Perot. Yet for some reason, they got blasted. We are now seeing just who knows what.
Sorry, but I cannot help laughing (arrogant idiots). If you're going to be arrogant, you'd better back it up. Otherwise you will be seen as a damn fool.
For any of you hedge fund managers out there who might be reading this, I'd say the best thing you can do to restore credibility and confidence to your investors is to announce you're working with me.
As they say on Wall Street, "You're only as good as your last call." As you might imagine, there aren't too many people on Wall Street worth a damn these days.
But none of that matters because many of these guys will start new funds. What bothers me the most is that much of the money that goes into the large hedge funds comes from pension plans.
In many cases, hedge funds are shut down and liquidated only because the fund has no chance of ever recouping the losses in order to share (20%) in the profits. So they start off with a clean slate so they can extract more money from the fund in fees.
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