Thursday, August 7, 2008

Earnings reporting puts public hedge funds in the spotlight

Publicly-traded hedge funds and private equity firms are in the spotlight this week due to a string of losses reported for the second quarter. Listing seems to be a double-edged sword for hedge funds. On one hand, they raised new infusions of capital not subject to redemptions and gained extra flexibility to manage through market events. However, it is unlikely that any fund anticipated both the depth of the credit crisis and the potential of the US economy to fall into a prolonged period of stagnation. The long-term effect of public reporting by traded funds is unclear, but it will be interesting to monitor, particularly if they continue to struggle to produce returns in this market.

The Wall Street Journal notes that "in the case of poorly performing hedge funds, many won't be able to book performance fees again until their funds return to certain levels -- a high-water mark that for some is looking increasingly distant. And private-equity executives managing souring funds could be liable for returning performance fees they already booked, an investor-protection feature known as a claw back."

Not a pretty picture for their funds, their investors, or now their shareholders.

Here are some of the earnings coverage:

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