Managed Accounts or Hedge Funds?

It seems harder and harder to find a safe way to invest. Even money market vehicles and the proverbial municipal bonds have been exposed to the recent turmoil and horrors. While it seems that the nation’s leaders are still hesitant to use words like “recession,” the grim reality is that they may need to adopt a new word altogether — depression. Counter party risk and a growing “crisis of faith” in the economy were woes that began in the subprime housing sector, and have now moved from one market to the next. Investors’ faith in the whole system is being shattered from one surprise to the next. People no longer trust assurances that fancy financial instruments will function the way they’re supposed to. After all, they know what happened to people who thought their subprime-backed securities were safe, AAA-rated investments.

Hedge funds are collapsing. This is a new occurrence. Over 31 major hedge funds have imploded taking billions of dollars down with them.

Peloton Partners
Focus capital
Falcon
CSO
Sailfish
Polar
Deephaven
Absolute Capital
Cooper Hill
Pirate
and the list continues...and more are to fall...

So how does one survive the onslaught?

First we are in a new world. Hedge funds do not trust the banks and banks do not trust the hedge funds. As much as one is losing to inflation when investing in U.S. treasuries, wouldn't it be nice to find a manager that can avoid some of the current land mines and generate positive returns? Wouldn't it be nice to have an account in your own name, that allows you to see every trade and have full liquidity? That is what managed accounts offer. One can find managers dealing with all spectrums of investing. The key, though, is even if you have full transparency and liquidity, you still need to understand the strategy and, most importantly, the risks entailed. You also need to have access to the manager so that you questions can be answered.

As in every crisis, there will be tremendous opportunities. Although a manager and his methods need to be analyzed, at this time, managed accounts offer superior options.

These are not easy times, and quite possibly the situation will become much more harder. One needs to take stock of their financial positions and make some hard choices. U.S. treasuries, even with the absolute low interest rates, make sense as far as capital preservation. At this point one needs to focus on preservation as opposed to returns on investment. There are too many stories in the news of those who invested in auction-rate securites ( which were sold as a "SAFE INVESTMENT") who cannot access their monies.