Nov

16

Hedge Funds and the Impact of the Internet

November 16, 1998 | Leave a Comment

A Talk By Brian McQuade, HedgeFundCenter.com, at the Opal Financial Conference during the week of 11/16/98           

I have three topics that I wish to discuss with you today:       

1. How is the hedge fund industry perceived today?       

2. What opportunities does the hedge fund industry have available to it to change these opinions?       

3. How will the Internet play a role in facilitating a conversation about the hedge fund industry that has previously not happened?       

As I discuss these topics, Frank [Chung, Vice President, Opal Financial Group] will be navigating Hedgefundcenter.com so that you can view an example of an online community. First, many of you who attended George Van’s [Chairman, Van Hedge Fund Advisors International] presentation last night recall him mentioning that his web site also has some educational material about hedge funds.        

How is the hedge fund industry perceived today?       

I read the major newspapers like all of you do. No doubt, the negative stories reported by the media regarding Long Term Capital Management have played a huge part in how the hedge fund industry is perceived. I have concluded that there are three general types of media articles regarding hedge funds being printed:       

1. Hedge funds manipulate sovereign currencies, leverage and potentially cause global economic crises;       

2. Hedge funds are secretive and can therefore make large, risky bets without knowledge of or notification to shareholders; and       

3. Hedge funds have lost x number of dollars (with the press citing numerous individual funds).       

Let me offer to you that the negative media attention on the hedge fund industry is happening due to a few “bad apples” and the circumstances that I have cited do not apply to the vast majority of hedge funds. Not surprisingly, thanks to the media, the public equates “hedge funds” with risk, losing money and instability.       

What opportunities does the hedge fund industry have available to it to change these opinions?       

The hedge fund industry for the most part has not done a good job in educating and disseminating to the public the benefits of hedge funds. Individual hedge fund managers have certainly chimed in with their “two cents,” but their varied remarks are not widely viewed as a unified message being put forth by the industry.       

I’d like to make a comparison to the mutual fund and 401(k) industries, since having worked on that side of the business for the past four years, I am familiar with it. Despite recent market volatility, the individual investor has continued to max out his 401(k) and funnel the majority of retirement savings into the stock market. How could this be? What does the individual investor know that the professional money manager or plan sponsor is not privy to?       

The media reports that appear in the financial newspapers and magazines regarding mutual funds generally have the following characteristics in common:       

1. Long-term investing is the way to go and will make everyone rich in the end;       

2. Market volatility should not be viewed as a deterrent to the long-term investor; and       

3. Mutual funds and 401(k)’s offer great diversification and tax advantages to the individual investor.       

The reports are invariably accompanied by quotes from financial planners to substantiate the claims. The basic message offered by a mutual fund industry as a community is that the products and services that are provided create financial freedom for investors and employees. The bottom line: the mutual fund and 401(k) industries have unified, spent a lot of time and money (and most recently creating an Internet presence) educating and disseminating a common theme, and have succeeded in creating positive opinions and loyalty.       

Compare that story with the story of the hedge fund industry.       

I’d like you all to imagine for a moment a front-page Wall Street Journal article titled “How Hedge Funds Lower Risk In A Portfolio” or how about “Many Outperforming Market Sectors Ignored In Traditional Portfolios Available to Hedge Fund Investors.” Imagine articles extolling the virtues of hedge funds in which the press writes about how hedge funds when combined in a traditional portfolio, can lower its risk when low correlated funds are added or about how many small and emerging companies in overlooked industries couldn’t have made it without the help of hedge funds.       

The opportunity that the hedge fund industry has is the possibility of it educating the public and disseminating information about it that has previously not been offered. Again, the opportunity that must be embraced here is education.       

How will the Internet play a role in facilitating a conversation about the hedge fund industry that has previously not happened?       

Every one of us in this room is affected by the Internet and we are acutely aware of its power to communicate information. Although the Internet provides several advantages over other types of communication, I’d like to briefly touch upon two.       

1. The Internet is easy and accessible. You do not have to make numerous phone calls or hire a team of researchers and consultants to obtain basic information on hedge fund strategies, characteristics, benefits and risks.       

2. It is anonymous. Though this is more of a benefit for plan sponsors, high-net worth individuals and institutions, it still bears mentioning. Potential investors who are interested in learning more about the industry do not have to alert consultants or hedge fund managers of their interest, when all they may want to know is, “what is a hedge fund.”       

I have outlined for you today, the public perceptions of the hedge fund industry, the opportunities available to it in order to educate and disseminate factual information and how the Internet is an excellent medium in order to communicate.       

In closing, I’d like to request that each one of you who are passionately committed to the hedge fund industry join with me and my business, Hedgefundcenter.com in furthering the educational efforts greatly needed. I’d like you think about the following topics that we are publishing online and what each of you could contribute to this list:       

1. What are the strategies?       

2. What are the benefits?       

3. What are the risks?       

4. What does the academic research say?       

5. What is the future of alternative investing?       

Thank you.


Comments

Name

Email

Website

Speak your mind