(Originally posted on November 17th 2009)
Not my words!!! It is one of the many “jokes” that was circulated by Mark Lowe. I do not think that is true. A blonde can purr as nicely as a Ferrari and requires as much maintenance as a Toyota. Now by this I am not saying that Blondes are cheap. What is expensive though is a Ferrari engine in a communist or socialist car. Give me a simple “blonde” fund over an over leveraged bad fund anytime. However sometimes we can get blinded by the returns and forget about the structural integrity. Sometimes you just don’t know whether your decision is right or wrong. In the long run which will perform better. Every rule has its exception and right now even though I think that a normal fund is better; I have taken a big risk by going in for the over leveraged vehicle. Only time will show me whether it is the right move. If something wrong happens then all I can say is that I would be stranded in a desert not knowing where the mirage starts and where the oasis are.
(Originally posted on November 10th 2009)
Today there is no other alternative but to invest in alternative investments. However more and more banks and financial institutions are distinguishing investments by those that provide alpha and those that provide beta.
Similarly the last year and a half has seen the metamorphis of the emerging market. Exposure to BRIC and other emerging markets should be an essential part of a portfolio. If you buy into vodafone then you are by no means buying a developed market U.K. based company. Conversely you may actually be buying a company that depends more on the Asian and Eastern European markets for growth, while they lose market share in their traditional markets where O2 which is owned by Telefonica gets all the exclusive deals.
In the coming years I think the markets currently classfied as emerging will outperform the developed markets with a better risk adjusted return. I do not think that we will see years where the return would be greater than 50% but if the US markets are giving 8% with a 5% volatility and the Asia market are giving 10% with an 7% volatility then surely it will be better to go in for the latter.
This financial mess was cataclysmic and requires a paradigm shift in our thinking of investments. Are fixed income or even. Government issued bonds safe? Are investments backed by real assets safe? Are hedge funds really riskier than equities?
If it was up to me then I would get my entire exposure to the asset classes through hedge funds and ETF’s. Hedge Funds I believe are flexible in nature even if they are not liquid for investors. ETF’s gives you access to the broad market and asset classes. You get your beta from the ETF’s and alpha from hedge funds. You don’t end up paying unnecessary fees to managers. I would rather see the profits of those investments increase by the non payment of fees rather than fatten their pockets. Besides I do not think that banks actually provide sufficient service to justify their fees. But sometimes you just don’t have a choice. A small sized family office will not have the manpower to do the due dilligence of a fund properly. It is not cost effective. When stuck between the devil and the deep sea it may just be better to sleep with the devil than risk drowning in the process of finding out if you can swim in the deep sea.
(Originally posted on October 26th 2009)
This whole Galleon affair has got me nervous. Where do you draw a line on insider trading? Can something I say about a particular hedge fund or share over the phone or a glass of whisky be counted as a recommendation to buy and later on become a candidate for hedge funds? I classify hedge funds into three categories.Funds that potentially can be suited for the family office, funds that I like and funds that I would feel comfortable to invest in. I do not think I have revealed the specific names of funds that the family has invested in. I have told people of funds that I like or do not like. However now I think I will keep that too to myself. Hopefully the lack of a current confidant will not cause me to burst my seams. I do miss the person I used to talk to. In this industry it is very hard to trust people and even harder for someone to understand what you are saying. I hope a quarter century from now my son will share my passion for the markets. I also hope that half a decade from now I will not be a Madoff. The last thing I would want is to spend the last 4 years of my life depending on the hospitality of His Majesty’s Prison Guard.
(Originally posted on 23rd October 2009)
I have started watching Law & Order: Criminal Intent again after Jeff Goldblum has come into it.Yesterday’s episode dealt with Hedge Funds. Somehow even TV shows will not stop in bashing hedge fund managers and investors. Hedge Funds are supposed to be for sophisticated investors. If people don’t understand that then they should stick with traditional investments or just buy ETF’s. Making money is not a sin even if it is as the expense of another. For the markets to do well a balance has to be maintained. Somehow I cannot escape from the financial markets. “You can get in anytime you like but you can never leave.” Getting into Investments is like getting bitten by a vampire. That blood thirst will never leave you. Most of the people will be suspicious of you. Some people will give themselves to you. Finally every vampire will be suspicious of other vampires. Oh and during economic summits it may be best going out during the night.
(Originally posted on 15th of September 2009)
It would be irresponsible of me not to make any comment with the one year anniversary of what would become one of the biggest financial crisis in history. It was one of those events which was supposed to be a six sigma event. However those six sigma events are becoming more frequent. There are various theories which seek to explain these phenomenon but I will save it for another day. The collapse of Lehman,AIG, the selling of Merrill Lynch and Royal Bank of Scotland created a paradigm shift which changed the face of banking and the way people viewed bankers and people working in the financial industry. Last Halloween the hottest costumes were that of a banker and Sarah Palin. Suddenly bankers were placed on the same platform as Guy Fawkes, Osama bin laden and George W. Bush. The irony of these three names are that they are viewed as super heroes by some people and villains by others.
Hedge Funds are placed in the same basket and the recent ads by Stella Artois are a hit below the belt. My view was and continues to be that Hedge funds are the only instruments that could have eased the fall. However the brilliant members of the central banks of the world over decided to ban short selling. I liken that move to blaming an undertaker for making profits during an epidemic and preventing from digging graves to bury the body.
The big banks were a monarchy. They ruled the world. Now the people are fighting back. I cannot say whether their cause is just or whether they are even aware of what they are fighting for. The people will win this round but the big banks will be back to their behemoth best in some form or the other. In the mean time I continue to believe that Hedge Funds are one of the best alternatives. I end with a quote made about a person who was a prince in a lot of people’s hearts. Jennifer Grey paid tribute to Patrick Swayze on his death by saying “Gorgeous and strong,he was a real cowboy with a tender heart.” “He was a rare and beautiful combination of raw masculinity and amazing grace” In my view Patrick Swayze in Dirty Dancing provides a good metaphor for hedge funds. Johnny Castle was exotic, attractive, kind,misunderstood and had humble beginnings. However he was the only one who had the strength to say “Nobody puts Baby in a corner.”
(Originally posted on August 12th 2009)
My friend Sunil Chandy made the following statement “A good song is one where the meaning of words and the meaning of the music meet and enrich each other.” Sunil is a gifted musician and a gem of a guy. The wisdom and simplicity of the quote is filled with sublime beauty.
I have from time to time described myself as a singer who plays the guitar and not a guitarist who sings. A year back I used to joke that if I had to lose my job then at least I had some chance of earning an income by busking in the underground.Music to me should be pure. There should be as few physical barriers between the audience and the musician. A simple stringed or percussion instrument and an audience. The best songs are those that are played with the three major chords and at the most using the two related minors. However this by no means makes a song less complex or interesting.
Investments should follow a similar philosophy. If a hedge fund is supposed to be a long/short equity fund then it should invest in purely liquid equities or have the option of placing cash. Having portions of the fund in shares of unlisted companies should not be part of the portfolio although the manager will have such a clause in the Private Placement Memorandum.
Transparency in hedge funds is needed. However not to the extent that each and every deal should be made available to the public. If that had to happen then there would be no money to be made. Huge profits can be made only in environments where positive and negative returns results in a good volatility. A good hedge fund is one that comes as close as possible to providing absolute returns year after year just like a good song is one that touches you no matter when you listen to it.
(Originally June 18th 2009)
There is a Chinese proverb that says “The palest ink is better than the best memory”.It is for moments like this where I believe this blog will be extremely useful in the future. Right now I feel like Pearl in Andrew Lloyd Webber’s musical Starlight express. The song “Make up my mind, make up my heart” is how I feel right now. I am convinced that Distressed is the place to be. But which investment is the right one? Finally I guess the decision will boil down to which fund provides the best accessibility to the managers and how easy will it be to get out of the investment if things take a turn for the worst. Even with that criterion there is no clear cut winner. There is always the option to get into more than one to hedge the bets.
I can’t help but notice that my philosophy and approach is affecting my personal life. Hedging things in my life, measuring the risk reward, wondering whether I should consider the overall volatility when making a decision or consider only the downside potential. Sometimes things are becoming so bad that I apply the same principles to make money in World of Warcraft. I am supposed to be using that to relax from work not be reminded of it. Switching off is extremely important for me. I hope I can continue to do that successfully.