Fraud, Weak Performance Hampering Hedge Funds

By Garmhausen, Steve | American Banker, February 4, 2009 | Go to article overview

Fraud, Weak Performance Hampering Hedge Funds


Garmhausen, Steve, American Banker


Byline: Steve Garmhausen

Not long ago, clients of Hawthorne, the multifamily office unit of PNC Financial Services Group Inc., were demanding more hedge fund choices.

Thathas all changedsince Dec. 11, when the financier Bernard Madoff was charged with perpetrating a gigantic Ponzi scheme. Now Hawthorne clients donot want to hear about hedge funds, said Thom Melcher, the business' chief investment officer.

"The first question has been, 'Are you bringing me something that is a hedge fund and that has a lockup?'" Mr. Melcher said. "If the answer is yes, we can't even get to explaining the investment thesis and the potential return."

The specter of fraud is likely to stalk the hedge fund industry in 2009, experts agree. But that is just one concern for the industry, which is also facing investors exasperated by hedge funds' poor performance and their long "lockup" periods, in which investments cannot be withdrawn.

Tough new hedge fund oversight is also expected. A Senate bill introduced last week would bring the virtually unregulated investment pools under Securities and Exchange Commission jurisdiction. Hedge fund investors are eager to have more information on matters such as how their money is being invested and how dependent their returns are on leverage, said Lee Giovannetti, the chief executive of Consulting Services Group LLC, a Memphisfirm that advises institutional and individual investors.

"There is very little confidence across the board with the current regulation system," he said. "Our clients and most institutional investors we're talking to would welcome more transparency."

Concerns about hedge funds' shortcomings are rippling through the all-important institutional investor community, which had relied on them to mitigate investment risk.

"Institutional investors, whether endowments, foundations, or retirement plans, are really kind of at a crossroads now," Mr. Giovannetti said.

Endowments and foundations are particularly anxious about the lack of access to money they have invested in hedge funds. Hedge funds routinely require investors to keep their money with the fund for a lengthy period, and in recent months many have taken steps to delay redemptions further.

That is "very, very concerning" for endowments and foundations because they need cash to meet commitments they have made to other alternative investment managers, Mr. Giovannetti said.

Pension managers' worries, meanwhile, center on performance and disclosure issues, he said. They are particularly concerned with the problems dogging one of their favorite investment vehicles - funds that invest in multiple hedge funds. Many nonpension investors have been winding down their positions in the funds of funds, which has forced the vehicles' managers, in turn, to make redemptions in the only places they are available: the best-performing hedge funds.

Pension investors are concerned "that they have been thrown in there with investors that do not have the same characteristics and objectives," Mr. Giovannetti said. …

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Fraud, Weak Performance Hampering Hedge Funds
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.