Trading and Exchanges - Rich Managers, Poor Clients

Trading and Exchanges

Homework Assignment

Rich Managers, Poor Clients

The industry gives a high level of trust to hedge fund managers, who are often seen as the top players of the financial world. Successful managers become billionaires, but it is uncommon to see a client become extremely wealthy by investing in the hedge fund. The average effective return for clients has been only around 2.1% since 1998, compared to the 7% average returns for the industry. This can be explained by the fact that the best managers will attract more investors, which consequently increase the cash in the fund. When a bad year comes, the monetary losses will outweigh the past profits, causing the average return of the fund to exceed the average return of individual investors.

After the dot-com bubble had burst, investors pooled their money into hedge funds and private equity. The overall assets had increase from just over $200 billion in 2000 to $2 trillion in 2008. However, the average return for hedge funds were a depressing -23% that year. In monetary terms, hedge funds may have lost in that year alone more than they have ever made in the past. As clients have lost money and have yet to gain it back, managers have collected around $100 billion in fees between 2008 and 2010. It may be a time to reconsider the blind trust that has been formed towards hedge funds.

NYSE Deal Nears Collapse

The past year has been full of failed attempts at mergers and consolidations between several exchanges around the world. Similarly, European antitrust regulators want to decline the proposed $17 billion merger of NYSE and Deustche Borse, fearing that the combination of their companies would create a monopoly, especially in the derivative markets. The companies argued that not only would their merger help unite European trading and allow