According to the Fiscal Times the cold hard facts are:
(a) There are too many hedge funds around, all scrambling for some kind of edge;
(b) When managers whose funds have grown too large and who don’t have the right skills to generate alpha organically begin to flag, the temptation is to push the envelope in terms of what is legal;
(c) The nature of the hedge fund market – including the opacity of the strategies that managers pursue – doesn’t lend itself to simple due diligence on the part of its investors;
(d) As long as alpha is being generated somehow, the tendency on the part of those investors (and others who benefit, such as the trading desks for which a Galleon Group might generate hefty trading commissions) is to “hear no evil, see no evil, speak no evil.”
The larger the fund, the more it relies on trying to get an “information edge” or insight when trading large-cap stocks, the greater the possibility that there is something happening in which the FBI may take some interest. Even if the fund’s founder or chief manager isn’t involved directly, those working for him may be tempted to push the envelope out of fear of losing their jobs or simply being humiliated in front of their peers when the top guy hollers at them for failing to come with a great, profitable new idea.
It’s not surprising that the FBI has found another 120 targets (and 120 more individuals who thus far are merely “suspects”) by turning over some more rocks on Wall Street and Main Street. Maybe fear of the Feds will accomplish what ethics, morals and sheer common sense haven’t managed to do: force wannabe Gordon Gekkos to think twice before crossing the line….
Read all about it at http://www.thefiscaltimes.com/Columns/2012/03/05/Insider-Trading-How-Hedge-Funds-Look-for-an-Edge.aspx#page1
No comments:
Post a Comment