No, not the part where you hand over millions of dollars to (largely unregulated) hedge fund managers who can do pretty much whatever they want with your money. And not the part where you pay them both management AND performance fees. The part where you aren’t allowed to sell for two or three years.
Following complex strategies requires some stability in assets, so hedge funds -- which have a limited number of investors -- don't allow willy-nilly trading. Instead, most operate with a "lock-up," a time period when the investor agrees to stay put. Most often, the lock-up period is 12 months, although some funds are now going out for two and three years. When the lock opens, a hedge fund investor either agrees to another year, or pulls out.
It's the lock-up that ordinary fund investors should lock down and make part of their investment criteria. The lock-up requires the investor to answer one basic question: "Do I like this fund enough to be locked into it for another year or two?"
More than 5 percent of all hedge funds have been liquidated each year for several years, with the attrition owing to investors deciding that they don't want to lock their cash up with the same fund again. A hedge fund manager who sees a bunch of shareholders making a no-confidence vote when it's time to re-up for another year may simply pull the plug before most of the cash heads for the exits.
Mutual funds not only have no lock-up, they practically encourage inertia and mediocrity. With no pressure to make a hold or sell decision -- and with management free from worry that investors will rush the exits -- shareholders often settle for mediocrity.”
No, not the part where you hand over millions of dollars to (largely unregulated) hedge fund managers who can do pretty much whatever they want with your money. And not the part where you pay them both management AND performance fees. The part where you aren’t allowed to sell for two or three years.
Following complex strategies requires some stability in assets, so hedge funds -- which have a limited number of investors -- don't allow willy-nilly trading. Instead, most operate with a "lock-up," a time period when the investor agrees to stay put. Most often, the lock-up period is 12 months, although some funds are now going out for two and three years. When the lock opens, a hedge fund investor either agrees to another year, or pulls out.
It's the lock-up that ordinary fund investors should lock down and make part of their investment criteria. The lock-up requires the investor to answer one basic question: "Do I like this fund enough to be locked into it for another year or two?"
More than 5 percent of all hedge funds have been liquidated each year for several years, with the attrition owing to investors deciding that they don't want to lock their cash up with the same fund again. A hedge fund manager who sees a bunch of shareholders making a no-confidence vote when it's time to re-up for another year may simply pull the plug before most of the cash heads for the exits.
Mutual funds not only have no lock-up, they practically encourage inertia and mediocrity. With no pressure to make a hold or sell decision -- and with management free from worry that investors will rush the exits -- shareholders often settle for mediocrity.”
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