Filing this under: YOU HAVE GOT TO BE KIDDING ME!!!
I clearly should have blown up a few funds, fundraising would be much easier…
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Lots and lots of press lately for kaChing and Covestor. I have my own thoughts on their business model (probably a longer post later), but I think they are missing a huge opportunity – outsourcing for RIAs.
Nothing out there currently exists as a tech platform for RIAs. Think AlphaMetrix but for the RIA space. Think BrightScope but for the RIA space. (kaChing looks like they have this idea as a side pocket but I think it should be focus #1.)
The biggest problem as an RIA is operations. (Believe me, I run a RIA as well as private funds and it is an ENORMOUS legal, regulatory, and operational headache.)
The biggest problems from an individual investor standpoint are fees, performance, and transparency. Try and get performance info on the thousands of RIAs out there – it’s impossible. Are they GIPS verified? How much AUM do they have? Has the firm been sanctioned? A friend passed along the book Wealth which mentions the opaqueness of the RIA and brokerage space – a huge problem and opportunity IMO.
From a RIA perspective, the biggest hurdle is legitimacy – is the company going to be around in 5 years? (Fidelity and Schwab sure are.) And both sites have a very strong retail web 2.0 vibe – not really what a lot professional money managers want to impress when pitching clients.
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Lots of chatter lately about endowments puking up their private equity portfolios. (And interesting companies popping up to facilitate private transactions like Sharespost and SecondMarket).
I always wondered why big investors of private equity (like the endowments and pension funds) don’t hedge their portfolio at all? If they assume that they are top quartile, which they have to assume becuase otherwise they should be buying SPY and QQQQ, then they are assuming they’re generating alpha returns. So why not hedge out some of that risk through a static, or better, dynamic hedge? Hedging against long bear markets is a great idea because not only are their holdings going down in value, but their exits disappear. Anyways, ping me if anyone does this I’d like to chat with them. Is there such a thing as a market neutral private equity investor?
We talk a lot about private equity in the book, and a lot about why using the ETFs (ETNs) in the US doesn’t make any sense. Anyways, below is the 10 month SMA on the not-recommended PE ETF. Looks like you would have sold somewhere in the 20′s and bought back somewhere around 8. Not too shabby.
Too bad there was not some way to “short” Meriwether. Perhaps an Intrade Market contract should initiated for trading.
Brett
TMA = Too Many Acronyms.
I haven't met anyone who hedges their private equity portfolio either. Maybe the thinking is 'hopefully I am in the top quartile or decile, but since I can't know for sure for years I better be bullish on the general market since otherwise I will be loosing money the whole time with static hedging'.
Meriwether: The one lesson I have learned from reading about famous traders is that their real skill involves selling people on their own investment prowess. As you read the biographies of some of these guys it is just crazy how many wrecked funds and sunk investment companies they leave in their wake! There is always a few hundred million available to fund them again with a new partner ;->
“The whole problem with the world is that fools and fanatics are always so certain of themselves, but wiser people so full of doubts.”
– Bertrand Russell (1872-1970)
Regarding Peter Matthews' new operation, it is amazing that Mint has succeeded if he just discovered the principles quoted by the journalist:
“It really means we can’t possibly know what is going to happen in the future,”
“…a risk management system rather than a trend-following system…” (Rule #1 don't loose money!)
“We look at low risk as such a great thing that we should do a lot more of it and high risk as such a bad thing that we should do almost none of it.” as stated upon the 1 millionth rediscovery of the Kelly criterion
If everyone invested this way though utopia would probably be next around the corner!
TMA = Too Many Acronyms.
I haven't met anyone who hedges their private equity portfolio either. Maybe the thinking is 'hopefully I am in the top quartile or decile, but since I can't know for sure for years I better be bullish on the general market since otherwise I will be loosing money the whole time with static hedging'.
Meriwether: The one lesson I have learned from reading about famous traders is that their real skill involves selling people on their own investment prowess. As you read the biographies of some of these guys it is just crazy how many wrecked funds and sunk investment companies they leave in their wake! There is always a few hundred million available to fund them again with a new partner ;->
“The whole problem with the world is that fools and fanatics are always so certain of themselves, but wiser people so full of doubts.”
– Bertrand Russell (1872-1970)
Regarding Peter Matthews' new operation, it is amazing that Mint has succeeded if he just discovered the principles quoted by the journalist:
“It really means we can’t possibly know what is going to happen in the future,”
“…a risk management system rather than a trend-following system…” (Rule #1 don't loose money!)
“We look at low risk as such a great thing that we should do a lot more of it and high risk as such a bad thing that we should do almost none of it.” as stated upon the 1 millionth rediscovery of the Kelly criterion
If everyone invested this way though utopia would probably be next around the corner!
[...] kaChing is requiring all Geniuses on their platform to register as RIAs – which I think is a great step in the right direction. I still think the killer app for these guys is to morph into a technology/back office provider to outsource RIA duties which I posted about back in October. [...]