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There's at least one big fallacy in this post: "This is a tiny fraction of the 1% fleecing the rest of the 1%." This is dangerously inaccurate. A significant p

by siavosh 15y ago

There's at least one big fallacy in this post: "This is a tiny fraction of the 1% fleecing the rest of the 1%." This is dangerously inaccurate. A significant portion of hedge fund assets are from institutions not wealthy individuals. This includes government assets (from local to federal), college endowments, pension funds etc. If the analysis is correct, this is a tiny part of the 1% fleecing all of us, and your parents too.

guelo 15y ago
I don't know enough to be sure one way or another but when Bernie Maddof's fund collapsed it did seem like it was mostly just rich people who lost money. Also it seemed like clients were obtained via personal relationships, not any kind of market exchanges. But I don't know if that fund was typical or not.
- siavosh 15y ago
  Hedge funds typically cater to two different types of clientele. In Bernie Maddof's case it was probably mostly private wealth management. The other is institutional money.
- 2arrs2ells 15y ago
  Quite a few nonprofits and foundations had money invested with Maddof, and he was a rather sketchy money manager. Many (most?) universities have some funds invested with hedge funds (as well as VC funds and PE funds).
  - wallflower 15y ago
    You can make the argument that Harvard is an unregulated hedge fund. "I say get rid of exemptions on profits while keeping the charitable deduction for donors. Why should Harvard be tax-exempt on the dividends it receives from Microsoft or IBM stock, when everyone else is taxed on that dividend?" "So, in my mind, Harvard is a hedge fund that has a relatively small, money-losing education business on the side. I can see a justification for an endowment in a world of uncertainty when there are “bankruptcy costs” associated with the failure of a non-profit. However, large endowments are disturbing and are possibly evidence that a non-profit has not followed a zero or negative IRR strategy." Excerpts from the comments, not from the article http://marginalrevolution.com/marginalrevolution/2008/05/what-should-be.html http://marginalrevolution.com/marginalrevolution/2008/05/wha...
- anamax 15y ago
  > I don't know enough to be sure one way or another but when Bernie Maddof's fund collapsed it did seem like it was mostly just rich people who lost money. What definition of "rich" are we using? I didn't look at every story on the first page of the google serp for "madoff victims stories" but the ones that I did read mentioned folks who I don't consider rich. For example http://articles.moneycentral.msn.com/Investing/Extra/madoff-and-me-one-victim-s-story.aspx http://articles.moneycentral.msn.com/Investing/Extra/madoff-... .
- tsotha 15y ago
  Mostly? Hard to say. Sure, there were a lot of celebrities and people we've heard of. But that may just be a case of selection bias. If you're reporting on the story and you have to choose a name, wouldn't you choose Kevin Bacon over some Schlub from Nowheresville? There are a lot of pension funds and charities on this list: http://www.finalternatives.com/node/6354 http://www.finalternatives.com/node/6354
- danssig 15y ago
  Other hedges were invested in Maddof and you can bet pensions were in some of those.

by siavosh 15y ago

guelo 15y ago

I don't know enough to be sure one way or another but when Bernie Maddof's fund collapsed it did seem like it was mostly just rich people who lost money. Also it seemed like clients were obtained via personal relationships, not any kind of market exchanges. But I don't know if that fund was typical or not.

siavosh 15y ago
Hedge funds typically cater to two different types of clientele. In Bernie Maddof's case it was probably mostly private wealth management. The other is institutional money.
2arrs2ells 15y ago
Quite a few nonprofits and foundations had money invested with Maddof, and he was a rather sketchy money manager. Many (most?) universities have some funds invested with hedge funds (as well as VC funds and PE funds).
- wallflower 15y ago
  You can make the argument that Harvard is an unregulated hedge fund. "I say get rid of exemptions on profits while keeping the charitable deduction for donors. Why should Harvard be tax-exempt on the dividends it receives from Microsoft or IBM stock, when everyone else is taxed on that dividend?" "So, in my mind, Harvard is a hedge fund that has a relatively small, money-losing education business on the side. I can see a justification for an endowment in a world of uncertainty when there are “bankruptcy costs” associated with the failure of a non-profit. However, large endowments are disturbing and are possibly evidence that a non-profit has not followed a zero or negative IRR strategy." Excerpts from the comments, not from the article http://marginalrevolution.com/marginalrevolution/2008/05/what-should-be.html http://marginalrevolution.com/marginalrevolution/2008/05/wha...
anamax 15y ago
> I don't know enough to be sure one way or another but when Bernie Maddof's fund collapsed it did seem like it was mostly just rich people who lost money. What definition of "rich" are we using? I didn't look at every story on the first page of the google serp for "madoff victims stories" but the ones that I did read mentioned folks who I don't consider rich. For example http://articles.moneycentral.msn.com/Investing/Extra/madoff-and-me-one-victim-s-story.aspx http://articles.moneycentral.msn.com/Investing/Extra/madoff-... .
tsotha 15y ago
Mostly? Hard to say. Sure, there were a lot of celebrities and people we've heard of. But that may just be a case of selection bias. If you're reporting on the story and you have to choose a name, wouldn't you choose Kevin Bacon over some Schlub from Nowheresville? There are a lot of pension funds and charities on this list: http://www.finalternatives.com/node/6354 http://www.finalternatives.com/node/6354
danssig 15y ago
Other hedges were invested in Maddof and you can bet pensions were in some of those.