Wednesday, September 20, 2006

Hedge Funds Flirt With Heresy: Going Public - New York Times

Going public allows a firm access to more funding. However, this funding comes at the cost of required SEC filings aimed at reducing transparency and secrecy.

Hedge funds are famous for their desire for secrecy which makes the fact that Fortress Investment Group was considering an IPO al the more interesting. It must be that the desire to access capital trumps the desire for secrecy.

From the NY Times:

Hedge Funds Flirt With Heresy: Going Public - New York Times:
"Hedge funds...— are known for their secrecy....being private and secretive also enables them to develop investment strategies and manage their business, big fees included, without [outsiders]...criticizing their outsize pay. So it is not without some irony that a hedge fund named the Fortress Investment Group may be the first to tear down those walls of secrecy. Fortress is considering an initial public offering this fall in a deal that could value the company from $5 billion to $7 billion...."
An interesting research question that arises from this if in fact the IPO occurs is who will buy these shares. I would not be surprised if, like closed end funds, these are held largely by individuals. In fact, in this case likely owners would be small investors who are forbidden from investing in hedge funds themselves.

Ironically the news comes on the same day that the transparency issue was also in the news as volatile energy markets create huge losses at some hedge funds rasing the possibility of a fund going being unable to meet its obligations. From the BBC:
"Amaranth Advisors, said it was now "aggressively reducing" its exposure to natural gas to protect its investors...US natural gas prices, called futures, have slipped 40% since August. They had risen sharply after hurricanes disrupted supplies last year....Amaranth made around $1bn on the surging energy prices last year but lost more than $3bn in the recent downturn, the New York Times reported.

"Last week Amaranth multi-strategy funds experienced significant losses in their energy-related investments following a dramatic move in natural gas prices," the fund said in a letter to investors that has been seen by the Reuters news agency."

No comments: