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Hedge fund blog

Hedge fund blog, a long only fund and an index fund zealot are flying in to present at an institutional beauty contest in New Zealand. As the hedge fund manager's plane lands they see one purple sheep alone in a field.

Professor passive says "Kiwi sheep are purple! I must buy them all, now. Will pay ANY price the owners want, no matter how high or overvalued. It's not my money. No need to know ovine business or earnings. Forget about analysis or due diligence. Ignore risk! Prices are always right as markets are efficient. I have academic tenure and gullible Swedish taxpayers paid for my fake Nobel in economic 'sciences'. Risk free...for me. Not for the muppets though"

Long only dinosaur says "Some kiwi sheep are purple but the professor says they all are. I am benchmarked to the index so I must also buy that sheep regardless of price. Can't risk tracking error and not being fully invested or pension consultants will remove me from their recommended lists. It's not my money either. I get paid the same whether customers win or lose."

Hedge fund blog says "I have clients, you have customers. That sheep MIGHT be purple but nothing should ever be short sold or bought without regard to price.  My clients are pension retirees, widows, orphans, endowments funding student scholarships and foundations serving good causes so I must do much deeper analysis. Our interests are aligned as ALL my wealth and family and friends' money is in the fund. I study potential investments very closely.

It's my fiduciary duty as a TRUE investor, unlike you salesmen. I'm only paid well if, and only if, I make absolute money for clients. Unlike you I invest as a prudent man does. You guys are breaking suitability and fiduciary rules for your unfortunate customers. Doing no analysis or due diligence before buying the alleged purple sheep? What are the outrageous fees you charge for your so-called "work" actually getting?

There seems to be a sheep, one side of which appears to be temporarily purple. This may be due to chemicals in the sheep-dip, an accident with dye or paint, an optical illusion, a practical joke or a smudge on the airplane window. I will closely study sheep fundamentals and talk to many shepherds, shearers and wool merchants.

My quant team will gather extensive ovine market data and conduct rigorous statistical analysis, mathematical modeling, stress tests and scenario simulations. Perhaps, after exhaustive research, I might be able to decide whether to short sell or even buy that apparently purple sheep, depending on its value.

The Nobel Foundation, the professor's university and long only dude's pension plan are clients because they need the absolute returns I deliver irrespective of market direction or economic growth. You can't buy food, pay faculty or meet liabilities with relative returns in bear markets. Professor Passive's employer is able to pay his tenured salary because it doesn't invest a cent in his beloved, high risk index funds. Too volatile and expensive."

Which fund would YOU invest in? Who should get the mandate? Who is most likely to generate RELIABLE risk-adjusted returns? Whose fees represent the best VALUE for the work? What manager is really the "cheapest"?

Would an investor truly following the prudent man rule choose an index fund given the fiduciary duty for due diligence in selecting appropriate investments for beneficiaries? Passive funds that do no security analysis or risk management are a clear breach of fiduciary duty.

Which fund offers alignment between client and manager interests? "Cheap" index funds are the joke. The more conservative you are the more you need in quality hedge funds. Index firms pay "experts" outrageous fees to market "low cost" high risk unskilled toxic waste to the masses. Don't get suckered in.

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