<p>just curious.</p>
<p>They think they are following the money. During the dotcom boom they all went to Silicon Valley. It’s a heard mentality.</p>
<p>…you think that these fields are going to go away?</p>
<p>most of the easy money in PE seems to have already been made, I’ll give you that. </p>
<p>VC’s sort of shaky, but with technology moving the way it is, the next big rush is always right around the corner.</p>
<p>hedge funds though…money management in general…that will ALWAYS be around! and it seems like top notch b-school grads prefer this to ibanking. why?</p>
<p>None of it is going away, they are all changing though. There will be more regulations, investors will demand a bigger piece of the pie, there will be new models for these businesses…the grads are choosing what they think will do best now, few have a long horizon. They want to be shown the money tomorrow, and they are placing their bets.</p>
<p>Though hedge funds remain a coup for these folks, I other PE venues (VA and LBOs) have lost the cache for those with big choice for the moment too. Yet realize that even top 10 MBAs are going begging now, most are still quite happy with a major ibank offer.</p>
<p>could you please elaborate on how u think these fields will change?</p>
<p>thanks!</p>
<p>blue</p>
<p>Hedge funds are in danger of being legislated out of profitability… Fortunately for them they’ve got enough money to buy politicians.</p>
<p>really?</p>
<p>…why?..how?..could you tell me a little bit more about that? are they going to be legislated just like mutual funds?</p>
<p>The money is going to be reduced in these fields. The last 10 years or so was the golden age of financialization in our economy (fueled by a 25 year credit bubble).</p>
<p>Financial industry is subject to boom and bust cycle in th past years.
the nature of the industry is rather hectic and will dry you up quick. The beauty of it is exciting; even the mediocre guy can earn decent amount of reward. </p>
<p>Yes, vc and hedge funds are shaky, but the risk is on the investors, not practitioners.</p>
<p>Americans are always stay at the fore front of the financial industry. Although US economy is hardest hit at this round, I believe that financial industry will not die. American are innovative, more new types of financial products will be invented in the years ahead (can even get around the regulations).</p>
<p>We, Asisn, are following the trend of the US and the western countries. If you have experience working in a Wall Street firm, you can easily get a job in Asia (China, HK, Japan, Korea).</p>
<p>The most important think is whether you have interest in this field.</p>
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<p>Totally and completely false.</p>
<p>I think what hk2009 meant to say is that the risk weights disproportionately upon the investors rather than the practitioners, and in particular, is misaligned with the potential rewards accorded to the two. As the old saying goes, if fund investments perform well, then the managers become rich, but if they perform poorly, oh well, they merely lost somebody else’s money, and they still earned management and transaction fees. Unlimited upside, but restricted downside. Many observers of the financial industry such as myself have now been asking why fund managers invariably seem to do better than their clients.</p>
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<p>this is factually incorrect. the proposed legislation (in the US and in Europe) are legal mandates associated with levels of disclosure as well as regulatory requirements (e.g. SEC registration) – something that the blue chip hedge funds have long called for anyway. nothing in the legislation prohibits and / or alters the fee structure or fees charged.</p>
<p>those in the industry have been keeping a very close eye on this.</p>
<p>I heard they are going to make hedge funds go before a death panel! [/sarcasm]</p>
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<p>Sure hedge fund managers have been hearing a lot of this lately, but ultimately, its a market and the price (or fees) is a market price set by supply and demand. The fact is, there are hundreds of billions of dollars seeking “alpha” as we call it in the industry and a relative few number of people on the planet from a sheer percentage vs. the global population that have managed to produce positive absolute returns on a consistent basis. For a PM that has managed a consistent 15-20 return per annum over the course of, say, 10 years, on an AUM of, for example, 100 million, you’re looking at a “back of the envelope” return of approx. 150 million over the course of that time (less the performance fee) PROFIT – and that’s not taking into account the potential return over time from a re-investment of those profits on an annual basis. Now doesn’t a skilled HF manager deserve to take 20% for generating that kind of return? You ain’t getting that kind of return from your local CD account.</p>
<p>Now of course, there are going to be ups and downs in the industry, there will be the LTCMs and Madoffs, but in the end, there is way too much money seeking above market returns for the industry to simply go away.</p>
<p>Beta folks like mutual fund managers are a different story, I can see their slim margins eroding even further – and similarly fund of funds managers (including HF of funds) will see margin compression as well. And to be fair, there has been some reduction from the standard 2/20 to 2/15, but that also has to do a bit with “performance numbers boosting” but I digress. At the end of the day, the super rich don’t really mind the fees – just like they aren’t going into a Ferrari dealership and haggle over the price.</p>
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<p>The two are one and the same. Try taking 2/20 on $0 and you’ll see what I mean.</p>
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<p>Please. I’ve been speaking to industry consultants, brokers and capital introduction specialists and the major institutional investors, pension funds are done re-trenching and redeeming funds, this year will see a net inflow of assets into the alternative investment space -> billions of dollars.</p>
<p>What are you basing this “0” on? I’ve got hard figures. I look at the asset inflows on a monthly basis across regions. The flow into risky assets has never been stronger – which is exactly what you’d expect to see when markets have bottomed.</p>
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<p>The issue is not about those managers who can produce genuine alpha, for I agree, they deserve to be paid well. The issue regards what UChicago GSB professor and youngest IMF Chief Economist in history Raghuram Rajan calls ‘fake alpha’, which is producing seemingly outsize returns only by taking on risks that are hidden from the clients, and then simply hoping that those risks simply never come to fruition. Many of the fiendishly complicated securities engineered in the last few years such as synthetic CDO squared or cubed’s were found by Coval Jurek & Stafford 2008 in the Journal of Economic Perspectives to simply be clever means of concealing risk, and that same trio showed in their 2009 American Economic Review paper that “…senior [AAA-rated] tranches [offered] insufficient compensation relative to their underlying risks”, relative to plain-vanilla AAA-rated corporate bonds, yet the fact that both securities carried AAA ratings meant that those CDO’s offered, what turned out to be fake alpha, especially at a gearing ratio of 35x as in the case of Bear Stearns. </p>
<p>Genuine alpha can be ascertained through not only an entire lifetime of work (and possibly beyond), but also through a comprehensive assessment of the entire risk profile of a portfolio. The problem is that bonuses are awarded within the limited confines of the lifetime of a particular fund - often times yearly - and fund managers were therefore wrongly rewarded for risky investments assumed by their portfolios that luckily just so happened to not have turned sour during the time frame in question, *and they’re not giving any of it back. * The FT’s John Dizard put it succinctly:</p>
<p>"A once-in-10-years-comet- wiping-out-the-dinosaurs disaster is a problem for the investor, not the manager-mammal who collects his compensation annually, in cash, thank you. He has what they call a "r</p>
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slow down there, prestige. they’ve been talking about changing the tax structure on carried interest, such that it’s taxed at your marginal rate rather than at long-term capital gains rate of 15%. that’s a huge hit to the rich in the world of finance. it may or may not happen but it will indeed be a hit on their wallets.</p>
<p>What I worry about is how much negative effect that will have on the venture capital industry, which I see as adding far more value to the economy, in the long run, than hedge funds or LBO shops. but for tax purposes the structure of all those funds is the same.</p>
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<p>And that’s exactly the problem. The fact is, the market for alternative investments, just like the market for luxury cars, is not an efficient market, for, if it was, then customers should be be haggling away all outsize profits, driving prices down to marginal costs, for that is how competitive markets are supposed to function. But, as you have noted, that doesn’t happen, for the market for alternative investments is fundamentally affected by features reminiscent of social status. It would seem socially unseemly for a rich person to haggle too hard over the price of a Ferrari, even though that is precisely what he should be doing according to the Neoclassical school of Economics. </p>
<p>Alternative investment fund managers also do not simply take customer demand - however warped by social factors - as a given, but actively shape it through clever marketing, which is little more than puffery that serves to obfuscate and bamboozle the customer. Every single private equity fund will claim to provide above-market returns, but how can that be when academia has shown comprehensively that "the average performance of buyout funds is below that of the Standard and Poor’s 500 after fees are taken into account (Phalippou 2009, Lerner Schoar & Wong 2007, Kaplan & Schoar 2005)? </p>
<p>Personally, I tend to think that alternative finance is an example of a Veblen Good, of which investors want to participate simply to enjoy the social status of simply being limited partners of a particular fund while others are not, regardless of how well that fund may be doing. But that’s nothing more than rent-seeking, for that sort of activity doesn’t actually generate total economic surplus, in fact, if anything, it subtracts from surplus by imposing a negative (social) externality on the rest of society. The metaphor of private equity is the marriage of ownership and management of any particular buyout target to mitigate agency problems. However, the private equity structure introduces an agency problem of its own - namely that between its investors (the LP’s) and the fund managers - and this agency problem is arguably even worse than the one it replaced.</p>
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<p>And the real question is - why should that be? Particularly when no empirical evidence exists that alternative investments as an aggregate asset class actually produces above-market returns after fees, and much evidence to the contrary.</p>