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There’s a short, satirical letter from imaginary hedge fund Zilch Capital in the most recent issue of The Economist.And if you’re a real hedge funder, you may want to avert your eyes.
Why? Here’s a short excerpt:
Like our peers we have also started talking a lot about how we are “multi-strategy” and “capital-structure agnostic”, and boasting about the benefits of our “unconstrained” investment approach. This is better than saying we don’t really understand what’s going on.
The purpose of the letter (said the letter) was to explain why Zilch was “making some changes to the language we use in our marketing and communications.”
Instead of promising absolute returns:
“we’re going to give you “risk-adjusted” returns or, failing that, “relative” returns…”
Instead of delivering alpha:
“we have decided that we’re actually much better at giving you “smart beta”. This term is already being touted at industry conferences and we hope shortly to be able to explain what it means.”
Of course, the 2% management fee and 20% performance fee rule, The Economist pointed out, will remain unchanged.
Clearly, The Economist doesn’t think the industry is delivering.
That said, I expect somewhere a hedge funder is writing an angry letter that begins with, “Dear Sir,”…