Yes, $3.7 billion , as in 3,700 million dollars. That’s more than the GDP of 58 countries according to this list. Countries like Greenland, Belize, and Aruba. Does this concern anyone else? To me, it’s not just the number that is startling, it’s issues that surround hedge funds and the effect such things may have on the economy. Things such as:
There is little transparency. These funds take pension funds and invest them in risky trades with little to no oversight. Individuals who indirectly invest in these funds have no idea where their money is going, or how it is being used.
There is no incentive to properly weigh risk. When you make risky trades with someone else’s money, you either get a huge payday (see above) or you apologize and get a new job elsewhere. They share in the good times, but not in the bad. For every George Soros, there seems to be an Amaranth that goes belly up, and leaves the investors out to dry. In fact, the guy at Amaranth that lost almost $6B himself started his own fund, and is currently advising another fund.
The compensation they receive is unearned. Many charge annual fees equal to 2 percent of their assets under management, and take a 20 percent cut of any profits. Despite this, they collectively do not perform much better than their competitors.
- While it’s up for debate, they seem to engage in shady practices and have a deleterious effect on the markets. A few cites on this:
C. “As if that wasn’t enough, the tremors came at a time when hedge funds were under increasing scrutiny by politicians and regulators concerned about their growing impact on global financial markets. With total assets of more than $1.8 trillion, the industry has nearly doubled in size since 2004, and the activities of hedge funds can increasingly move markets. The danger posed by these lightly regulated vehicles, which employ strategies such as short-selling, trading in derivative securities, and leverage, to the financial system has been demonstrated before — most vividly by the 1998 implosion of Long-Term Capital Management (LTCM), a giant American hedge fund that lost $4.4 billion in six weeks and had to be bailed out with the help of the U.S. Federal Reserve to avert a market panic.”
D. ["Soros, the founder of Quantum Endowment Fund, one of the world’s largest hedge funds, was dubbed “The Man who broke the Bank of England” for his role in betting heavily that the pound would fall in 1992. As a result, Britain suffered a humiliating exit from Europe’s exchange rate mechanism – the precursor to Europe’s 12-nation currency. It was rumored that Soros earned $1 billion in a day with his bet against the British pound.
Though analysts say Soros’ influence in markets has waned, many agree with the gist of his remarks and are reluctant to fight a trend that has pushed the dollar down sharply against major currencies. Soros was sharply critical of Snow’s policy shift, branding it a “mistake” and labeling it a wrongheaded attempt to stimulate the U.S. economy at the expense of other economies."](http://www.globalpolicy.org/socecon/crisis/2003/0520soros.htm)
Isn’t all of this something we should all be really really concerned by?