Hedge Fund Armageddon

It’s been a topic of major discussion of late.

Most of my friends and colleagues tend to be employed in the investment space in some shape or form. 

One in particular actually got so pissed off in 2008 that he closed his fund to new investments preferring to just manage patient capital, most of it his.

He did this because when 2008 hit, despite being cash heavy and knowing in the depth of his bones that he should be strategically deploying that capital into some truly incredible opportunities as every Tom Dick and Harry just blindly hit the sell button, he was being redeemed. 

We all know how that worked out.

Many made a goddamn killing buying dirt cheap assets that some clown had dumped because he saw prices moving against him and either didn’t know why he owned it in the first instance or he was a poor asset manager forced to liquidate positions to meet redemptions.

And now it’s happening again.

This is both a good and a bad thing. It just depends how you’re wired and whether or not you can do what everyone says. Buy low, sell high and sell high, buy low. 

In any event who was that guy?

My buddy Kuppy who runs Praetorian Capital and writes over at Adventures In Capitalism. Kuppy beat me to the punch on writing about what we’re seeing so I share it with you here.

Like all industries, the hedge fund industry is highly cyclical. 2018 is proving to be a catastrophe for many of my fund brethren. Let’s face it; most hedge funds have produced pretty awful returns for the past few years—a time when the S&P (the global benchmark) has shot the lights out. There’s an obvious reason for this underperformance and it comes down to the demands put upon most hedge fund managers.

While funds theoretically can do whatever they want (within reason); if they want to actually raise substantial capital, they’re supposed to beat the S&P every month of the year, with a Madoff level of volatility, while providing monthly liquidity. As you can imagine, this is simply impossible to achieve, yet many of my friends try anyway.

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Disclosure: Funds that I manage are long Tesla put spreads.

Disclaimer: This is not intended to render investment advice. None of the principles of Capex Administrative Ltd or Chris MacIntosh are ...

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