Wall Street Journal, March 27, 2015: “One of the keys to running a hedge fund is learning how to say you don’t. Grappling with years of uneven performance, image problems and deep-pocketed clients who have publicly distanced themselves from the industry, hedge-fund managers are taking pains to avoid the moniker.”
The problem may be a lot more serious than any of us think and threaten the global economic system.
A few short years ago, western civilization was threatened by a proposed change in the taxation of hedge fund managers, if you read between the lines of comments by one representative of the CT Hedge Fund association in response to a movement in Congress to increase taxation on hedge fund managers.
“So the Connecticut hedge fund industry is fighting back.
“The concept of carried interest is a core principle that’s imbedded in the tax code,” said John Brunjes, a Hartford-based attorney who is a director of the Connecticut Hedge Fund Association. “There’s a philosophy that earnings are taxed one way and wages another.”
To Brunjes, a change in the tax code would dissuade Americans from participating in the high-risk, high-gain world of hedge fund investing.
And if private investment dries up, “the impact on the economy would be devastating,” he said.””
It seemed to us that Mr. Brunjes was saying that if hedge fund managers paid higher taxes, investors would be more reluctant to invest in hedge funds, ostensibly due to concerns that hedge fund managers wouldn’t earn enough. And the domino effect would reverberate throughout the world’s largest economy.
You can see that it sort of makes sense. People associated with hedge funds are amongst the best and brightest human evolution has to offer (at least for the 50% of Americans who are not bothered by the theory of evolution). But best and brightest is not enough. It’s clear they also need to be amongst the wealthiest, or the whole system falls apart. Hedge fund investors, by dint of their preference for premium products of the type preferred by the ultra-rich, must deal with professionals at their own level of wealth in order to invest comfortably. So, just as higher taxes on hedge fund managers would have turned the economic lights out, a similar crisis could emerge if less money were to flow to hedge fund managers because of something as trivial as underperformance.
Saving the Economy through Re-Branding Hedge Funds
On reflection, it seemed to us that the best way to preserve the industry’s integrity is to re-brand it. The goal would be to maintain the cachet of a turbo-charged industry, hinting at the industry’s sexiness and the higher risk which is known to accompany higher rewards, the latter embedded in its acronym which would generally go unnoticed.
Coming up with something suitable was harder than trying to write a haiku. Finally, we thought of something that could serve the industry’s needs faithfully:
High Extra-Reward-Potential Equity Strategies.
No need to thank us; we’re just trying to help.