As a firm that strongly favours a 'well diversified, buy and hold, long term provides strong returns for investors' approach to investing - one that is justified by a mass of research - a headline like that in today's Australian that 'Hedge Fund Woes Hit UBS' is a quiet justification of our strategy.
Hedge Funds are really 'trading funds', with a broad scope to invest in shares, commodities, currencys - basically anything that trades and using a reasonable level of debt to boot!
The Article in the Australian looks at Dillon Read Capital Management, and reported a loss for the quarter of about US$150 million. Which is a fair loss. Keep in mind that UBS would have only picked Dillon Read Capital because they thought that they were the best at what they do. Reporst also suggest that UBS has been hurt by hedge funds before, losing about $700 million in 1998 when Long-Term Capital Management LP collapsed.
Another $6.5 billion was lost in a recent hedge fund debacle - Amarnath Advisors.
Hedge funds sound great, however there is real risk involved and clearly when things to bad they go really bad.
Our thoughts - if one of the biggest and best financial services firms in the world - UBS - get burnt twice then it retail level investors must be doubly cautious!
Have a great (and hedge fund free) weekend!