When to Start a Hedge Fund

When to Start a Hedge Fund

Matthew Lynn: May be Right Time to Start a Hedge Fund


Matthew Lynn has written an interesting commentary for Bloomberg on hedge funds start-ups.  Hedge funds have been in hot water after recent arrests and the industry's dismal performance in the recession so it may be surprising that Lynn writes, "It may be time to quit that safe job and start a hedge fund."  He gives three justifications for this optimism:

First, you need to begin a fund when equity markets are cheap or fairly valued. The 20 percent fee that hedge funds typically charge only kicks in when the fund is in profit. It is only possible to make big money if you start the fund when the markets aren’t in a bubble. If you launch near the peak, you’ll be underwater for years, unless you start a short-selling fund.

Second, the “carry trade” is back. You can borrow money cheaply in the U.S. and the U.K., then reinvest the money in higher-yielding currencies and assets. For much of the last decade, the hedge funds were doing that with the Japanese yen. Now they can do it with the dollar and the pound as well.

Third, the determination of central banks to reignite the global economy by flooding the markets with printed money is creating asset bubbles everywhere. They are popping up so fast, and so obviously, even former Federal Reserve Chairman Alan Greenspan could spot them. You can take your pick from the Australian dollar, emerging-markets equities, or gold.  Source

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