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What are hedge funds, and what social functions do they serve?

danwang.co

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Re: What are hedge funds, and what social functions do they serve?

#41

Post by lifeisstillgood »

1123581321 wrote: post #30
danwyd wrote: post #4

Fairy long article. Here's the summary: Hedge funds are investment vehicles that have avoided being heavily-regulated because they only accept money from government-certified "accredited investors." Their investment strategies are secret and unconventional. Some of them deliver floods, while the average one doesn't do that well. Hedge funds provide liquidity, which makes it easier to trade; and conduct arbitrage, so…

Long-Term Capital Management's bailout was organized by the Fed even though it didn't actually take on the assets. If the private bailout hadn't been agreed to, then the Fed would have directly intervened. I say this to correct the record, not to detract from your point about risk management, which is true.

And it is not whether an organsiation is a bank or a hedge fund that determines if it is bailed out - it is the expected social cost of it's collapse that determines it - hence LTCM was bailed out, because the smart money thought it would take us all with it and why Lehmens was not (mistakenly?)

Re: What are hedge funds, and what social functions do they serve?

#42

Post by m52go »

lmg643 wrote: post #39

What social functions do hedge funds provide, indeed? Renaissance Technologies avoided $6bn in taxes by using derivatives to pretend their ultra-high frequency trading profits were actually long-term capital gains. http://www.bloomberg.com/news/2014-07-21/renaissance-avoided... Renaissance is one of the biggest and most successful hedge funds of all time. SAC was another of the most successful hedge funds of all time…

You're conflating 'social' with 'moral'. Everything you mentioned is morally questionable, not socially harmful.

Re: What are hedge funds, and what social functions do they serve?

#43

Post by tptacek »

jackgavigan wrote: post #33

If you're interested in reading some more about the collapse of LTCM, I recommend When Genius Failed by Roger Lowenstein (for a fuller appreciation, read Liar's Poker by Michael Lewis first). If you're interested in reading an excellent account of a startup HFT/hedge fund, it's worth ordering a secondhand copy of The Predictors by Thomas Bass (for a fuller appreciation, read Chaos by James Gleick first).

_When Genius Failed_ is a freaking fantastic book; even after the 2008 crisis, still one of the all-time best pieces of financial narrative journalism ever.

I'm not sure _Liar's Poker_ sets it up that well. Go ahead and read Lowenstein first. In fact, it might even work better the other way around, because Lewis' narrative is really fragmented and Lowenstein's isn't.

Re: What are hedge funds, and what social functions do they serve?

#44

Post by samdb »

jackgavigan wrote: post #33

If you're interested in reading some more about the collapse of LTCM, I recommend When Genius Failed by Roger Lowenstein (for a fuller appreciation, read Liar's Poker by Michael Lewis first). If you're interested in reading an excellent account of a startup HFT/hedge fund, it's worth ordering a secondhand copy of The Predictors by Thomas Bass (for a fuller appreciation, read Chaos by James Gleick first).

Another Lewis book, The Big Short, is also a good introduction to the events leading up to the 2008 crash.

Re: What are hedge funds, and what social functions do they serve?

#46

Post by soupboy »

> How did a few asset managers earn more money in a single year than Pierpont Morgan did in his whole life?

Ummm, no they don't. $1 in 1913 is around $24 in today's dollars[http://data.bls.gov/cgi-bin/cpicalc.pl?cost1=1&year1=1913&ye...]. So JPM's net worth today would be $36 billion making him the 12th richest person person in the world [http://www.bloomberg.com/billionaires/2014-09-19/aaa].

Re: What are hedge funds, and what social functions do they serve?

#48

Post by danwyd »

lmg643 wrote: post #39

What social functions do hedge funds provide, indeed? Renaissance Technologies avoided $6bn in taxes by using derivatives to pretend their ultra-high frequency trading profits were actually long-term capital gains. http://www.bloomberg.com/news/2014-07-21/renaissance-avoided... Renaissance is one of the biggest and most successful hedge funds of all time. SAC was another of the most successful hedge funds of all time…

The comparison has to be with banks...

Does Citi diligently pay every penny in taxes it owes?

Does J.P. Morgan perfectly free of corruption and accusations of insider trading?

Does Goldman always deliver high returns to its clients and charge very reasonable fees always?

Re: What are hedge funds, and what social functions do they serve?

#49

Post by damoncali »

lmg643 wrote: post #39

What social functions do hedge funds provide, indeed? Renaissance Technologies avoided $6bn in taxes by using derivatives to pretend their ultra-high frequency trading profits were actually long-term capital gains. http://www.bloomberg.com/news/2014-07-21/renaissance-avoided... Renaissance is one of the biggest and most successful hedge funds of all time. SAC was another of the most successful hedge funds of all time…

You might want to rethink your position on stock buybacks - they're more or less equivalent to dividends, and perfectly harmless.

Re: What are hedge funds, and what social functions do they serve?

#50

Post by yummyfajitas »

damoncali wrote: post #49
lmg643 wrote: post #39

What social functions do hedge funds provide, indeed? Renaissance Technologies avoided $6bn in taxes by using derivatives to pretend their ultra-high frequency trading profits were actually long-term capital gains. http://www.bloomberg.com/news/2014-07-21/renaissance-avoided... Renaissance is one of the biggest and most successful hedge funds of all time. SAC was another of the most successful hedge funds of all time…

You might want to rethink your position on stock buybacks - they're more or less equivalent to dividends, and perfectly harmless.

The claim is that corporations will borrow money and use it to buy back shares. That's actually a nice hack - interest income is favorably treated relative to capital gains, so it's a way to turn a higher tax piece of capital (stock) into a lower tax piece of capital (bonds).
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