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Hedge fund investors of the world unite!


Date: Wednesday, November 26, 2008
Author: Katie Benner, CNNMoney

As the founder of Tremont Capital Management, Sandra Manzke has been in the hedge fund business for more than two decades. So when a veteran like her calls for hedge fund investors to unite and protect themselves against “egregious hedge fund managers,” you know there’s been a tectonic shift in the industry.

In an open letter to investors posted on the site of her current firm, MAXAM Capital Management, Manzke says she is, “appalled and disgusted by the activities” of many managers who are lining their pockets while damaging the industry’s reputation.

Manzke, who made her first investment when there were only 68 hedge funds, called for the formation of a “Hedge Fund Investors United Forum” that could be influential enough to curb rapacious fund managers. “As a group we can influence the future of the industry. We can start to define neutrally beneficial terms, not punitive investor terms… We need to get hedge fund managers to work for their investors and not for their personal gain.”

Chief among Manzke’s gripes about hedge fund practices: suspending redemptions, thereby, prohibiting investors from recouping their money even as losses mount; and charging outrageous fees.

What’s more, writes Manzke, some managers are attempting to get their money out ahead of investors, trying to eliminate performance hurdles, asking investors to increase fees to pay for fund expenses, receiving fees on liquidating funds, receiving fees on illiquid securities, and inaccurately pricing the value of their assets.

Manzke is not alone in her criticism of the hedge fund world. Congress is currently trying to find a way to regulate the industry, and the SEC has made several failed attempts to reign in hedge fund activities. “2008 is certainly a poster child for the need for better regulation,” writes Manzke.

“If we want to survive, we have to restore confidence and reshape the industry,” she continues. “I am not saying everyone out there is a bad apple, but there are too many bad apples for my taste and it only takes a few to bring the industry to its knees.”