WEST PALM BEACH, FL (www.hedgeco.net) -Mario Gabelli, one of Wall Street’s biggest names, has remarked that there may be additional hedge fund blow-up stories in the future. Gabelli was speaking at the Reuters Hedge Fund Summit in New York. He noted, “That despite the fact that the hedge fund industry attracts the best of money managers, there may still be hedge fund blow-up stories like the Bayou Hedge fund collapse of the previous week.”
Gabelli, the Chairman of GAMCO Investors Inc., also noted that failure in the hedge fund industry is inevitable, despite the fact that the industry offers better compensation packages that the mutual fund industry. According to him, the annual compensation package for hedge fund industry has reached over $1 billion. Gabelli said, “The likely cause of future hedge fund blow-ups may come from the efforts of hedge fund managers trying to catch up with their returns after a series of losses.”
He said at the summit, “Even if they work hard and are honest, they’re going to lose money the old-fashioned way. And to the degree that they’re leveraged, and to the degree that there’s something called the high-water mark, that’s the prescription for a blowup.” The high water mark provision is a process through which hedge fund managers only get paid after they catch up with the fund’s previous high-water mark level.
Gabelli further noted that a chance of losing money in hedge funds is real. Adding, “You cannot take a bottle of pills, pass them around the table and make us all smart, that allows us to go in and be a successful hedge fund. You’re going to lose money.” The recent scrutiny over hedge funds resulted from the Connecticut based Bayou Hedge fund collapse last week. Federal and State regulators are examining Bayou’s record books following the liquidation of the hedge fund thought to be managing assets well over $300 million.
Paul Oranika
Contributing Writer
HedgeCo.Net
Email: Editor@hedgeco.net
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