Confessions of an Institutional Investor | The Big Picture: "....There are many organizations with large portfolios that could benefit from a more conventional philosophy. Many of my peers in the institutional investment industry that I talk to have up to 50, 60 even 70% of their portfolios in alternative investments. This is a recipe for disaster.... Making contributions to hedge funds is easy. They want your money, so you can usually invest on a monthly basis without much notice. But try getting your money out. You usually need at least 90 days’ notice and even then you can only redeem on a quarterly or annual basis. If you decide to cut ties with the fund altogether and redeem all of your capital you typically only get 80-90% of your money back from the hedge fund at redemption. The other 10-20% “holdback” doesn’t come back to you until the hedge fund’s annual audit which could be up to a year later. So you are forced to sit and wait as your money earns nothing while they make sure the NAV is correct. Contrast this with index funds and ETFs that are priced every second of the trading day. If your hedge fund closes for any reason you get to see the true colors of the illiquid crap these guys are really investing in. Hedge funds can close because of the loss of large investors, untimely investments or simply bored managers that have more than enough money and are sick of meeting client expectations...." (emphasis added)
Institutional Investors, Recipes for Disaster
This is the end of the year -- time to reflect, realize mistakes, plan for the future --
Confessions of an Institutional Investor | The Big Picture: "....There are many organizations with large portfolios that could benefit from a more conventional philosophy. Many of my peers in the institutional investment industry that I talk to have up to 50, 60 even 70% of their portfolios in alternative investments. This is a recipe for disaster.... Making contributions to hedge funds is easy. They want your money, so you can usually invest on a monthly basis without much notice. But try getting your money out. You usually need at least 90 days’ notice and even then you can only redeem on a quarterly or annual basis. If you decide to cut ties with the fund altogether and redeem all of your capital you typically only get 80-90% of your money back from the hedge fund at redemption. The other 10-20% “holdback” doesn’t come back to you until the hedge fund’s annual audit which could be up to a year later. So you are forced to sit and wait as your money earns nothing while they make sure the NAV is correct. Contrast this with index funds and ETFs that are priced every second of the trading day. If your hedge fund closes for any reason you get to see the true colors of the illiquid crap these guys are really investing in. Hedge funds can close because of the loss of large investors, untimely investments or simply bored managers that have more than enough money and are sick of meeting client expectations...." (emphasis added)
Confessions of an Institutional Investor | The Big Picture: "....There are many organizations with large portfolios that could benefit from a more conventional philosophy. Many of my peers in the institutional investment industry that I talk to have up to 50, 60 even 70% of their portfolios in alternative investments. This is a recipe for disaster.... Making contributions to hedge funds is easy. They want your money, so you can usually invest on a monthly basis without much notice. But try getting your money out. You usually need at least 90 days’ notice and even then you can only redeem on a quarterly or annual basis. If you decide to cut ties with the fund altogether and redeem all of your capital you typically only get 80-90% of your money back from the hedge fund at redemption. The other 10-20% “holdback” doesn’t come back to you until the hedge fund’s annual audit which could be up to a year later. So you are forced to sit and wait as your money earns nothing while they make sure the NAV is correct. Contrast this with index funds and ETFs that are priced every second of the trading day. If your hedge fund closes for any reason you get to see the true colors of the illiquid crap these guys are really investing in. Hedge funds can close because of the loss of large investors, untimely investments or simply bored managers that have more than enough money and are sick of meeting client expectations...." (emphasis added)
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