A New Stream for Hedge Fund Investors?

The news of the demise of former CNBC anchor Ron Insana’s venture has been a catalyst for more questions about the hedge fund business model. Are these project returns persistent (also here)? Are there cheaper alternatives?

Looking for uncorrelated pure alphas
I have a modest proposal for hedge fund investors in light of these difficulties. The story of hedge fund investing has been to look for a pure alpha stream, however you want to define it, that is uncorrelated with the return pattern of existing asset classes.

If that’s the case, why not go into the gaming (or casino) business?

In the gaming business, the house has an edge in any game you play and takes steps to enforce that edge (e.g. tossing out the card counters at Blackjack, etc.) The customers know it, but they still keep coming.

Statistically, the return pattern of every game that a customer plays is uncorrelated with any other. The advantage of being in the gaming business means that you don’t have the problem of the shifting correlation problem: The return correlations of seemingly uncorrelated factors and asset classes converging to 1 during periods of financial crisis.

The main difference is the fee structure. In a hedge fund, you typically pay 2% and 20% with a lockup. In the gaming business, the lockup remains. However, there are significant overhead cost to keep the lights on in a gaming operation. However an investor can gain some of the benefits of economies of scale if there are such a venture can achieve sufficient size.

Comments

[DaveW]

Clever article Mr. Hui

[Elaine Supkis]

Drug dealing has a much higher pay off. Of course, you have the overhead of guns, gangs and other enforcers. Bribing government officials. But then, everyone does THAT.

How about prostitution? In one 'Blackadder' episode, the deranged father says to his Elizabethan daughter, 'You can stay in bed and make your fortune!'

Or how about outright robbery? Either you can marry Cheney's daughter or you can get a gun, a get away car and do hold ups! Better still, just become a politician and collect bribes. Look at Bill Clinton: a $108 million dollar haul in less than 8 years!

Think of the possibilities!

This was Elaine Supkis of Culture of Life News.

[notsosmart]

i dont feel sorry for anyone losing by investing in a hedge fund.its usually a wealthy person(educated??) who has big numbers to invest & if they go there is really no pain.municipalities & pensions should probably stay clear.

[marketneutral]

Looking for a hedge fund job? The best way to get one is to contact them directly with your resume and cover letter. Now the hard part - finding a list of hedge funds. There are really no free lists, but there are some very cheap ones at hedgefundjoblist.com