Thursday, March 22, 2007

Are Hedge Funds out of Control? - Knowledge@Wharton

Here is a great podcast interview with Andrew Metrick of Wharton. You can either risten or read it as the transcript is available.

The first part of the interview is about his book and valuation (my favorite line, which fits perfectly with our classes):
"I think, actually, a lot of that is more the art of being a great venture capitalist than it is the science"
The latter part of the interview deals with hedge funds. A look-in:

Are Hedge Funds out of Control? - Knowledge@Wharton:
"Metrick: I don't see how significant regulation could actually be implemented at all. I would imagine that if the U.S. government tried to regulate hedge funds in any way that really kept them from performing to a level that they want to perform, they'll just all move to the Cayman Islands. So, I think that we're better off with extremely light forms of regulation that at least enable the hedge funds that are out there to not hide from us.

And on top of that, I would echo a suggestion of [a colleague who is now at MIT] who has called for something akin to what we have for plane crashes. When there is a plane crash, we go in there with a team and we try to figure out what happened. We really look through everything and then publicize the results: 'This is why this crash occurred; this is why Amaranth, for example, went down.'

So, the only thing that a hedge fund should be required to do is to agree that if they have a shut-down, within certain rules -- they're larger than a certain amount and they have a certain amount of out flows -- that they simply agree in advance that they'll open their books after they're closed."

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