Don Billings, a chartered financial analyst in Del Mar, sends in this observation about the county pension fund’s effort yesterday to argue that investing in hedge funds was no more risky than investing in stocks.

The claim that an investment (a.k.a., exposure) to a hedge fund is the same as an investment in a stock is false. With a stock, you know what you’ve bought. You have audited financials, a quoted stock price, a liquid market, in short, transparency and liquidity. In contrast, with a hedge fund investment, you don’t know what you’re risk is, and you have limited (or, for sometimes two years or so, no) liquidity. Hedge funds skim off the first returns and then share the rest with the investors. Their holdings are not disclosed in detail. They are very highly leveraged, and usually are vehicles for taking large, leveraged bets on macro or micro views (e.g., where is the dollar going vs. the yen).

Another reader JM wrote in with a different take on yesterday’s meeting:

… your experience should be a college text book example of how challenging it is to explain a complex subject to the public, particularly when the experts haven’t done their homework, and how difficult it is for the media (the public) to get straight answers.

There was a surprising amount of feedback on that post.


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