Wednesday, July 04, 2007

Hedge Fund Investors: Read Your Fine Print

Back in September of 2006, the papers were already discussing the fall of hedge fund Amaranth and what hedge fund investors should do to watch their money. This Article at the Wall Street Journal gives good advice for any readers who happen to be so brave as to put their money at such risk. If you thought you could pull your funds out without much problem, think again.

But frankly, who in his right mind would invest in a hedge fund without knowing that he can lose every penny? It is mind-boggling to think that someone with that much money would not know the risks he or she is incurring.

For those who don't know what a hedge fund is, it's a highly risky investment program that escapes from most of the federal restrictions and regulations. Unfortunately, there are many large pools of funds that are invested in hedge funds, and one of them could be your own IRA, pension fund or insurance policy. If you have access to the manager of your retirement funds or your life insurance company, please call them and find out what's being done with your future income. Even some money market funds are invested into hedge funds.

The times are precarious. Amaranth was only the first and most visible recent fund collapse, and it wasn't even involved in mortgages. We've now had two more balloons pop, over at Bear Stearns and another one in London, all three based on subprime loans.

My insider information tells me that those in the know should watch for monthly CDO mark-to-market figure declarations soon after the end of each month. The financial industry must declare certain numbers at that time, and also at their respective financial-year-ends. Unfortunately, however, they can lie, so try to read between the lines.

Keep your eyes and ears peeled during the first week or so of each month, for more crap to hit the fans. This should be a wild ride, and if it's not, I'll eat my hat. (It's made of straw and should go down nicely with a little vinaigrette and a sip of cabernet.)


[Thanks to /islandiavillage.com and to Travis Werklund for the cute photos. This is before; click on the image to see after.]

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